The appointment of auditors is a key compliance requirement under the Companies Act, 2013. Auditors are responsible for examining and expressing an opinion on the truth and fairness of the financial statements of a company. Their appointment, tenure, reappointment, and removal are governed by Section 139 to 148 of the Act, along with rules prescribed under the Companies (Audit and Auditors) Rules, 2014.

 Who Can Be Appointed as Auditor?

Eligibility (Section 141):

An individual or a firm can be appointed as an auditor if:

• He is a Chartered Accountant (CA) in practice.
• In case of a firm, the majority of partners must be practicing CAs.

Disqualifications (Section 141(3)):

The following persons are not eligible:

• A body corporate (except LLP).
• An officer or employee of the company.
• A person who is a partner or employee of an officer or employee of the company.
• A person who is indebted to the company for more than ₹5 lakh.
• A person who has a business relationship with the company.
• A person whose relative is a director or holds security in the company exceeding prescribed value.

 First Auditor Appointment (Section 139(6))

For Non-Government Companies:

• Who Appoints: Board of Directors.
• Timeline: Within 30 days from the date of incorporation.
• If Board Fails: Members must appoint at an EGM within 90 days.
• Tenure: Till the conclusion of the first AGM.

For Government Companies (Section 139(7)):

• Appointing Authority:CAG (Comptroller and Auditor General of India).
• Timeline: Within 180 days from the beginning of the financial year.
• Tenure: Till the conclusion of the AGM.

Subsequent Appointment of Auditor (Section 139(1))

For Companies other than OPCs:

• Appointed at the first AGM.
• Tenure: Holds office from the conclusion of that AGM till the conclusion of the sixth AGM (i.e., 5 years).
• Reappointment: Subject to ratification (if applicable) and company policy.

Mandatory Rotation of Auditors (Rule 5):

Applicable to:

• All listed companies
• Unlisted public companies having:
  • Paid-up share capital ≥ ₹10 crore
• Private companies having:
  • Paid-up share capital ≥ ₹50 crore
• Companies having public borrowings from FIs/banks ≥ ₹50 crore

Rotation Rule:

• An individual cannot be reappointed for more than one term of 5 consecutive years.
• A firm cannot be reappointed for more than two terms of 5 consecutive years.
• After completion, a cooling period of 5 years is mandatory.

 Auditor Appointment Process (Step-by-Step)

Step 1: Obtain Written Consent

• From the proposed auditor confirming eligibility, willingness, and compliance with Section 141.

Step 2: Board Meeting

• Pass a resolution for appointment (for first auditor).
• Recommend appointment to shareholders (for subsequent appointments).

Step 3: Shareholder Approval

• Pass an ordinary resolution at AGM for appointment (except first auditor).

Step 4: Filing with ROC

• Form ADT-1 to be filed within 15 days of appointment.
• Filed by the company, not the auditor.

Forms Related to Auditor Appointment

Consent and Certificate from Auditor

The auditor must:

• Give written consent to be appointed.
• Submit a certificate of eligibility declaring:
  • • He is not disqualified under Section 141.
    • The appointment is in accordance with the limits laid down under Section 141(3)(g) (maximum 20 audits).