An auditor of a company must be either a Chartered Accountant (CA) or a CA Firm whereof majority of partners are practicing in India. For details you may refer the provisions of section 141 of the Companies Act, 2013.
Section 139 of CA 2013 mainly deals with the matters regarding appointment of an Individual or an Audit Firm including Limited Liability Partnership (LLP) incorporated under the Limited Liability Partnership Act, 2008 as an auditor in a company.
Appointment and Selection Process of an Auditor in a Company
Sub-section (1) of section 139 of the Companies Act, 2013 read with Rule 3 and 4 of Companies (Audit and Auditors) Rules, 2014 says the following relevant provisions which have been sited below in a descriptive manner.
Appointment in First AGM:
An Individual or firm shall be appointed as an auditor of a company at the first AGM (Annual General Meeting) of the company.
Period of Office:
Such individual/ firm appointed as an auditor of a company in first annual general meeting shall hold office from the conclusion of 1st AGM till the conclusion of its 6th AGM and thereafter till the conclusion of every sixth meeting.
Approval by Members:
At every AGM, the company shall place the matter relating to such appointment for sanction by members.
Procedure of Selection:
The manner and procedure of selection of auditors by the members of the company at such meeting shall be such as may be prescribed. Such manner has been prescribed in Rule 3 of the Companies (Audit and Auditors) Rules, 2014.
In a brief, the process would be as under:
- Audit Committee or Board of Directors (BOD) shall take into consideration the qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor. They may ask for other info as it may deem fit.
- If the company have Audit Committee then it shall recommend individual/ firm as auditor to the Board.
- If Board agrees with the recommendation of Audit Committee, it shall further recommend those names to members in AGM. Otherwise, the Board itself shall consider and recommend the name of a Chartered Accountant or a CA Firm as auditor to members in AGM for appointment.
- The appointed auditor shall hold office till sixth AGM conclusion. However such appointment shall be approved by way of passing of an Ordinary Resolution (OR) in every AGM till 6th AGM.
- In case the appointment of auditor is not ratified by members in AGM then the BOD shall appoint another individual or firm as an auditor of the company.
Written Consent and Certificate from Auditor:
Before such appointment is made, the written consent shall be obtained from the auditor to such appointment along with a certificate in accordance with the conditions prescribed in sub-rule (1) of Rule 4 of the Companies (Audit and Auditors) Rules, 2014.
Note that the certificate shall also indicate whether the auditor satisfies the criteria provided in section 141.
Notice to Registrar:
The Company shall inform the auditor concerned of his or its appointment, and also file a notice in Form ADT-1 [Sub-Rule (2) of Rule 4] of such appointment with the Registrar within 15 days of the meeting in which the auditor is appointed.