Appointment of Statutory Auditor in a company

If you have registered a company, it is mandatory to appoint the First Auditor Appointment who acts as a statutory auditor which refers to the process of appointing an auditor in a new company incorporation to examine its financial records and ensure compliance with statutory requirements.

This appointment is a mandatory requirement under the Companies Act, 2013, in India, to establish a framework for financial accountability and transparency from the outset. In this article, CA Manish Mishra talks about What is First Auditor Appointment in a Company.

Key Aspects of First Auditor Appointment

The appointment of the first auditor is governed by Section 139(6) and (7) of the Companies Act, 2013, and the associated rules.

• By the Board of Directors: The Board must appoint the first auditor within 30 days of incorporation.
• By Members: If the Board fails to appoint the auditor, the members must appoint the first auditor in a general meeting within the next 90 days.

The first auditor holds office until the conclusion of the first Annual General Meeting (AGM), where a subsequent appointment or reappointment is made.

This requirement applies to all companies, including:

• Private Limited Companies
• Public Limited Companies
• Section 8 Companies

However, it does not apply to certain exempt categories, like one-person companies (OPCs) or small companies under specific thresholds.

Process for Appointment of First Auditor

Step 1: Board Meeting

• The company’s Board of Directors convenes to appoint the first auditor.
• A resolution is passed, recording the appointment.

Step 2: Intimation to the Auditor

• The selected auditor is informed of their appointment through a formal notice.
• The auditor must provide written consent and a certificate confirming their eligibility under the Companies Act, 2013.

• The appointment is recorded in company records but does not require filing with the ROC.

If the Board fails to appoint the auditor, the responsibility shifts to the shareholders in an extraordinary general meeting (EGM).

Roles and Responsibilities of the First Auditor

- Verification of Initial Financial Records: Ensuring the company’s financial statements comply with accounting standards.

- Advising on Compliance: Assisting the company in aligning with legal and financial regulations.

- Preparing Reports: Delivering the statutory audit report for the first financial year.

- Ensuring Transparency: Fostering trust among stakeholders by validating financial data.

Importance of First Auditor Appointment

- Legal Compliance: Ensures the company adheres to the Companies Act, 2013.

- Financial Accountability: Establishes a foundation for accurate financial reporting.

- Stakeholder Confidence: Builds trust with investors, creditors, and other stakeholders.

- Smooth Operations: Facilitates a clear financial framework for future audits.

Penalties for Non-Compliance

Failure to appoint a first auditor within the stipulated time can result in penalties for the company and its officers under the Companies Act. It may also lead to reputational damage and regulatory scrutiny.

Conclusion

The appointment of the first auditor is a critical step for any company, setting the tone for financial discipline and transparency. By ensuring timely compliance, a company not only meets its statutory obligations but also fosters long-term trust and credibility among its stakeholders. Contact us if you have any queries.