Auditor and His Role in a Company

Audit is a vital corporate governance practice conducted to ensure compliance with financial and operational standards. It involves a thorough examination of financial records, transactions, and physical assets to verify the accuracy and transparency of a company’s operations. Audits are performed by professionals with expertise in relevant fields, depending on the type of audit required.

For publicly listed companies, an independent auditor must review financial records before quarterly results are declared. A structured audit process ensures efficiency and transparency, typically following these steps:

1. Defining the role and responsibilities of the auditor.
2. Establishing the scope of work and departments to be audited.
3. Conducting the audit, compiling data, and reporting findings.

Process of Appointing an Auditor

All companies, whether private or public, must appoint an auditor to ensure financial integrity. The process includes:

• First Auditor Appointment: The Board of Directors must appoint the first auditor within 30 days of incorporation, who holds office until the first Annual General Meeting (AGM). If the Board fails, the company must appoint an auditor in a general meeting.
• Annual Appointment/Ratification: Auditors are appointed or re-appointed at every AGM to hold office until the next AGM.
• Intimation & Confirmation: The company must notify the appointed auditor within 7 days, and the auditor must confirm acceptance within 30 days, informing the Registrar of Companies (ROC).
• Government Companies: The Comptroller and Auditor General of India (CAG) appoints auditors for government companies.
• Filing with ROC: Companies must file Form ADT-1 with the ROC within 15 days of the appointment.

Special Resolution for Auditor Appointment

Certain companies must pass a Special Resolution to appoint an auditor if 25% or more of shares are held by:

• Public Financial Institutions
• Government Companies
• Central Government
• State Government holding 51% or more in a financial institution
• Nationalized Banks
• Insurance Companies

Failure to pass the Special Resolution results in a vacant auditor position, allowing the Central Government to appoint an auditor.Removal of an Auditor

The removal of an auditor is governed by the Companies Act and can occur before or after the completion of their tenure.

• If dissatisfied with the auditor’s work, a company may remove them before the end of their tenure.
• The auditor must be given a fair opportunity to respond to allegations.
• Central Government approval is required for early removal, submitted through Form ADT-2 within 30 days of passing a Board Resolution.
• Once approved, the company must pass a Special Resolution in a general meeting to appoint a replacement.

Rights, Duties, and Obligations of an Auditor

An auditor plays a crucial role in ensuring financial transparency and compliance. Their responsibilities include:

1. Preparing an Accurate Audit Report: The financial report must be based on verified data and comply with legal standards.
2. Providing an Opinion: The auditor’s opinion on the financial health of the company should be objective, including adverse remarks if necessary.
3. Making Inquiries: They must verify whether loans and advances comply with legal provisions.
4. Assisting in Branch Audits: If required, they should extend support for audits of company branches.
5. Adhering to Auditing Standards: The National Financial Reporting Authority (NFRA), in consultation with the Central Government, sets auditing standards auditors must follow.
6. Working Within Scope: Auditors must operate within the scope defined by the company’s Board.

FAQs on Auditors

Can an Auditor Be Re-appointed?

Yes, an auditor can be re-appointed at the AGM if:

• They are not disqualified under the Companies Act.
• They have given consent in writing for re-appointment.
• No resolution is passed to appoint another auditor.
• No resolution is passed preventing their re-appointment.

Who Can Be Appointed as an Auditor?

Eligible Auditors:

• Chartered Accountants (CAs).
• Firms with a majority of partners being Chartered Accountants, with signing authority given to CA-qualified partners.

Disqualified Individuals/Entities:

• Body corporate entities (excluding firms of CAs).
• Company employees or their relatives.
• Individuals who have given financial guarantees exceeding ₹5 lakh to the company.
• Partners, officers, or employees of the company.

By ensuring a transparent and legally compliant audit process, companies maintain financial integrity, enhance investor confidence, and comply with corporate governance standards.

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