Changing of Statutory Auditors

When a company changes its auditor, it means that it has terminated the services of the previous auditor and appointed a new auditor to take their place. This change can occur due to various reasons, including dissatisfaction with the previous auditor's performance, conflicts of interest, retirement or resignation of the previous auditor, or regulatory requirements.

The process of changing the auditor involves various steps, such as obtaining the consent of the new auditor, notifying the previous auditor and the regulatory authorities, and making the necessary changes to the company's records and documents. The new auditor is required to review the company's financial statements and audit reports, assess the effectiveness of the company's internal controls, and provide an opinion on the accuracy and completeness of the financial information presented by the company.

The change in auditor can have significant implications for the company and its stakeholders, as it can affect the credibility of the financial information presented by the company and the confidence of investors, lenders, and other parties. Therefore, it is important for companies to ensure that the change in auditor is carried out in a transparent and effective manner, with due consideration given to the potential risks and consequences of the change.
 

1. Audit Report Preparation: The auditor is responsible for preparing an audit report based on the company's financial statements. The financial statements should comply with the relevant laws and provisions of the Companies Act 2013 and relevant Accounting Standards.
2. Branch Audit Assistance: If the auditor is the branch auditor and not the company auditor, they will assist in the completion of the branch audit. They prepare a report based on the branch accounts and send it to the company auditor, who incorporates it into the main audit report.
3. Fraud Reporting: If the auditor suspects fraud or inconsistencies in the financial statements, they must report the matter to the Central Government in the prescribed manner.
4. Ethics and Conduct: The auditor must adhere to the Code of Ethics and the Code of Professional Conduct, including confidentiality, due care, and professional skepticism in performing their duties.

1. The Board of Directors must appoint the first auditor or auditors within one month of the company's registration. If the Board does not make the appointment, the company may appoint them at an Extra Ordinary general meeting who shall hold the office till the conclusion of the first Annual General Meeting.
2. The subsequent Auditor shall be appointed at Annual General Meeting for the period of five years who shall hold the office till the conclusion of the 6th AGM
3. The company must notify the auditor of their appointment within 7 days, and the auditor must accept or refuse the appointment within 30 days using a prescribed form.
4. If the auditor accepts the appointment, the company must file their acceptance using Form ADT-1 with the Registrar of Companies within 15 days of their appointment, along with the necessary documents and fees.
5. If the auditor refuses the appointment, the company must appoint a new auditor within 30 days and follow the same steps as above.
6. The auditor must adhere to the Code of Ethics and the Code of Professional Conduct while performing their duties, including maintaining confidentiality and due care. They must also prepare an audit report based on the financial statements of the company, ensure compliance with relevant laws, and report any suspected fraud to the Central Government.

Qualification of an Auditor:

1. As per Section 141(1) of the Companies Act, 2013, a person can be appointed as an auditor of a company only if he is a Chartered Accountant under the Chartered Accountants Act, 1949, and holds a valid Certificate of Practice.
2. A firm can also be appointed as an auditor, provided that the majority of its partners practicing in India are qualified for such an appointment.
3. As per Section 141(2) of the Companies Act, 2013, a Limited Liability Partnership (LLP) or a firm of Chartered Accountants can act as an auditor and sign on behalf of such LLP or firm.

Disqualification of an Auditor:

1. Section 141(3) of the Companies Act, 2013 specifies that certain persons are not eligible to be appointed as auditors of a company.
2. Such persons include a body corporate other than an LLP registered under the LLP Act, 2008, an officer or employee of the company, or a person who is a partner or in the employment of an officer or employee of the company.
3. A person is also disqualified if they or their relative or partner:
   1. Holds any security or interest in the company or its subsidiary, or its holding or associate company or subsidiary of the holding company, exceeding one lakh rupees.
   2. Is indebted to the company or its subsidiary, or its holding or associate company or subsidiary of the such holding company, in excess of Rs. 5 lakhs.
   3. Has given a guarantee or provided any security in connection with the indebtedness of any third person to the company or its subsidiary, or its holding or associate company or subsidiary of the such holding company, for value in excess of Rs. 1 lakh.
4. A person or a firm is also disqualified if they have a business relationship with the company, its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company, except for transactions in the nature of professional services permitted to be rendered by an auditor or audit firm.
5. A person is disqualified if their relative is a director or in the company's employment as a director or key managerial personnel.
6. A person is disqualified if they are in full-time employment elsewhere or if they hold an appointment as an auditor for more than 20 companies [other than one-person companies, dormant companies, small companies, and private companies having paid-up share capital less than Rs. 100 Crores].
7. A person who has been convicted of an offense involving fraud and a period of ten years has not elapsed from the date of such conviction is disqualified.
8. Any person whose subsidiary or associate company or any other form of entity is engaged in consulting or specialized services in reference to Section 144 of the Companies Act, 2013, is also disqualified.
    

If a person appointed as an auditor incurs any disqualification mentioned in Section 141(3) of the Companies Act, 2013 after their appointment, they shall vacate their office, and such vacancy shall be considered a casual vacancy.

These provisions are applicable to all types of auditors, including cost auditors, statutory auditors, and secretarial auditors.

If an auditor has resigned from a company, they must submit a statement within 30 days of their resignation using Form No. ADT-3. This form should be filed with both the company and the Registrar of Companies (ROC) and should include the relevant reasons and other facts. Form ADT-3 can be downloaded from the government website http://mca.gov.in.

The following information must be provided in Form ADT-3:

1. Income Tax PAN of the auditor or auditor’s firm
2. Name of the auditor or auditor’s firm
3. Membership number of the auditor or auditor’s firm’s registration number
4. Address of the auditor or auditor’s firm
5. Contact details (email id and phone number) of the auditor or auditor’s firm
6. Reasons for resignation
7. The resignation letter is attached to the above-mentioned form.