Appointment, Removal and Resignation of the Auditor
Chapter Thirty-Two
Syllabus topic none, this is an appendix
Pages 84 to 86 of 98
Appointment: section 139
The ordinary appointment, section 139(1)
Every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting, and thereafter till the conclusion of every sixth meeting.
| Who appoints | The members, at the annual general meeting |
| Term | From the conclusion of one annual general meeting to the conclusion of the sixth |
| Before appointment | The auditor's written consent and a certificate that the appointment will be in accordance with the prescribed conditions, and that he satisfies the criteria in section 141 |
| After appointment | The company informs the auditor, and files notice with the Registrar within fifteen days |
| "Appointment" includes | Re-appointment, by the Explanation to the sub-section |
Rotation, section 139(2)
For a listed company and prescribed classes, no company shall appoint or re-appoint:
| (a) | An individual as auditor for more than one term of five consecutive years |
| (b) | An audit firm as auditor for more than two terms of five consecutive years |
With a cooling-off period of five years before re-appointment.
Why rotation exists is the same reason staff are rotated within an audit: a long association with the same client erodes the fresh eye and the independence.
The other appointments
| Situation | Who appoints | When | Sub-section |
|---|---|---|---|
| The first auditor of a company | The Board, within thirty days of registration | If the Board fails, the members within ninety days at an extraordinary general meeting | 139(6) |
| The first auditor of a Government company | The Comptroller and Auditor General, within sixty days | If he fails, the Board within thirty days, and then the members | 139(7) |
| A casual vacancy | The Board within thirty days | Where the vacancy arose from resignation, the appointment must also be approved by the members at a general meeting within three months | 139(8) |
| A Government company's auditor | The Comptroller and Auditor General, within one hundred and eighty days of the financial year's commencement | 139(5) |
The casual vacancy rule has two halves and students give one. The Board fills it in thirty days; but where it arose from a resignation, the members must approve within three months.
Removal: section 140(1)
The auditor appointed under section 139 may be removed from his office before the expiry of his term only by a special resolution of the company, after obtaining the previous approval of the Central Government in the prescribed manner.
And the proviso: before any action is taken, the auditor concerned shall be given a reasonable opportunity of being heard.
| Three requirements, all of them | |
|---|---|
| 1 | A special resolution of the company |
| 2 | The previous approval of the Central Government |
| 3 | A reasonable opportunity of being heard given to the auditor |
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