Appointment Of Statutory Auditors

Important provisions relating to appointment of auditors—

(1) According to Section 224(1) of the Companies Act, 1956, every company shall, at each annual general meeting (AGM), appoint an auditor or auditors to hold office from the conclusion of that meeting until the conclusion of the next annual general meeting.

(2) The proviso to the Sub-section (1) of Section 224 lays down that before any appointment or re-appointment of auditor or auditors is made by any public company at any AGM, a written certificate shall be obtained by the company from the auditor or auditors proposed to be so appointed to the effect that the appointment or re-appointment, if made, will be in accordance with the limits specified in Sub-section (1B) of Section 224.

(3) Under Section 226(3), none of the following persons shall be qualified for appointment as auditor of a company:

It means LLP may be appointed as auditors of Company.

(a) A body corporate;

(b) An officer or employee of the company;

(c) A person who is a partner or who is in the employment of an officer or employee of the company;

(d) A person who is indebted to the company for more than Rs. 1,000 or who has guaranteed the repayment of any debt of more than Rs. 1,000 due to company by a third person;

(e) A person holding any security of that company which carries voting rights of that company after a period of one year from the date of commencement of the Companies (Amendment) Act, 2000.

A person shall also not be qualified for appointment as auditor of the company, if he is disqualified for appointment as auditor of any other body corporate which is that company’s subsidiary or holding company or subsidiary of that company’s holding company.

If an auditor becomes disqualified in any of the above ways after his appointment as auditor, then he shall be deemed to have vacated his office. According to the clarification issued on 27th August, 1976 by the then Department of Company Affairs (now Ministry of Corporate Affairs), an internal auditor cannot act as statutory auditor and similarly the statutory auditor cannot act as internal auditor (Department of Company Affairs Circular No. 5/77 dated 8th April, 1977).

(4) According to Section 224(1) of the Companies Act, 1956, every company shall, after appointing at each annual general meeting (AGM), an auditor or auditors to hold office from the conclusion of that meeting until the conclusion of the next annual general meeting, within seven days of the appointment, give intimation thereof to every auditor so appointed.