Introduction
Appointing the first auditor in a private limited company is a crucial step in ensuring compliance with the statutory requirements under Indian law. This guide provides a comprehensive overview of the process, definitions, steps involved, penalties for non-compliance, and a draft resolution to help companies navigate this essential aspect of corporate governance
Definitions
Auditor
An auditor is a qualified individual or firm appointed to examine, verify, and report on the accuracy and fairness of a company's financial statements.
First Auditor
The first auditor is the initial auditor appointed by a company’s Board of Directors within 30 days of incorporation. This auditor holds office until the conclusion of the first annual general meeting (AGM).
Private Limited Company
A private limited company is a type of privately held business entity in India, characterized by limited liability and restrictions on share transfer.
Steps to Appoint the First Auditor
1. Incorporation of the Company
Ensure the company is duly incorporated and registered with the Registrar of Companies (ROC). The first auditor shall be appointed within 30 days of the company's incorporation. [Please note that appointment of the first auditor is exempted for the private limited company]
2. Board Meeting
Notice: Issue a notice to all directors to convene the first Board meeting.
Agenda: Prepare the agenda, including the appointment of the first auditor.
3. Board Resolution
Convene Meeting: Hold the Board meeting within 30 days of incorporation.
Propose Appointment: Propose the name of the auditor (individual or firm) to be appointed.
Pass Resolution: Pass a Board resolution for the appointment of the first auditor.
4. Communication with the Auditor
Intimation: Inform the appointed auditor about their appointment in writing.
Consent: Obtain written consent from the auditor to act as the first auditor of the company.
Eligibility Check: Ensure the auditor meets the eligibility criteria under the Companies Act, 2013.
5. Filing with the ROC
Form ADT-1: File Form ADT-1 with the Registrar of Companies within 15 days of the appointment. This form notifies the ROC about the appointment of the auditor.
Penalties for Non-Compliance
Non-Appointment of Auditor
Penalty to Company: If the company fails to appoint an auditor within the stipulated time, the company and every officer in default shall be punishable with a fine of INR 10,000. If the contravention continues, a further fine of INR 100 for each day of default, subject to a maximum of INR 2,00,000, may be imposed.
Failure to File Form ADT-1
Penalty to Company and Officers: Failure to file Form ADT-1 within the specified time can attract penalties under the Companies Act, 2013, ranging from INR 1,000 to INR 10,000, depending on the duration of the delay.
For Attachment required for the Appointment of First Auditor:
Intimation by company to Auditor for appointment him as Auditor
Acceptance of Audit by Auditor
Board resolution for Appointment of Auditor.
An appointment letter was issued by the company to the Auditor.
Date: [Date Field Value]
To,
[CA Firm Name Field Value]
[CA Firm Address Field Value]
Dear Sir,
Sub: Appointment of Statutory Auditors of the Company
With reference to the above subject, we wish to appoint your firm as the Statutory Auditor of the company. Please let us know that you are duly qualified and eligible for this appointment as per the provisions of Section 139 and 141 of the Companies Act, 2013 and rules made thereunder and provide us with your written consent to act as Statutory Auditors of the Company. You shall hold the office of Statutory Auditor in the company till the conclusion of the First Annual General Meeting, to be held in the year [Financial Year Field Value]. You are also requested to issue a certificate to the company under Section 141 of the Companies Act, 2013.
Yours Faithfully,
For [Company Name Field Value]
[Director Name Authorised to sign Board Resolution]
Director
DIN: [Director DIN]
Date: [Insert Date]
To
The Board of Directors
[Insert Name of Company]
[Insert Address of the Company]
Sub: Consent to Act as Auditor
Dear Sir,
We acknowledge the receipt of the appointment of our firm as the statutory auditor of your company. In view of this, we hereby give our consent to act as the auditor of the company.
We hereby certify that:
(a) We are eligible for appointment and are not disqualified for appointment under the Companies Act 2013, the Chartered Accountants Act 1949, and the rules or regulations made thereunder.
(b) The proposed appointment is as per the terms provided under the Companies Act 2013.
(c) The proposed appointment is within the limit laid down by or under the authority of the Act.
(d) No proceedings against the auditor/partner of the firm are pending with respect to professional matters of conduct.
For [Insert Name of Auditor/Audit Firm]
Chartered Accountants
FRN: [Insert FRN]
[Insert Name of Partner]
PartnerMembership No: [Insert Membership No]
Date: [Insert Date]
CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF [COMPANY NAME] PRIVATE LIMITED HELD ON [DATE] AT [TIME] AT THE REGISTERED OFFICE OF THE COMPANY
"RESOLVED THAT pursuant to the provisions of Section 139 of the Companies Act, 2013 and the rules made thereunder, [Auditor’s Name], Chartered Accountants (Firm Registration Number: [FRN]), be and is hereby appointed as the First Auditor of the Company to hold office from the date of incorporation until the conclusion of the first Annual General Meeting, at such remuneration as may be mutually agreed between the Board of Directors and the Auditor.
RESOLVED FURTHER THAT any Director of the Company be and is hereby authorized to file the necessary forms with the Registrar of Companies and to do all such acts, deeds, and things as may be necessary to give effect to this resolution."
For [Company Name] Private Limited
_________________________
[Director's Name]
Director
DIN: [DIN Number]
Date: [Date]
Place: [City]
Date: [Insert Date of Appointment]
To,
[Insert Name of CA Firm]
Chartered Accountants
[Insert Address of CA Firm]
Dear Sir,
Sub: Appointment of First Statutory Auditors of the Company
With reference to the above subject, we are pleased to inform you that we appoint your firm as the Statutory Auditor of the company.
Your appointment has been approved by the directors in the board meeting held on [Insert Date of Board Meeting] at the registered office of the Company as per the provisions of Section 139(6) and 141 of the Companies Act, 2013 and the rules made thereunder. You shall hold the office of Statutory Auditor until the conclusion of the First Annual General Meeting (AGM), at such remuneration as may be mutually agreed upon between the Board of Directors of the Company and the Auditors.
Certified to be a true copy,
For [Insert Name of Company]
[Insert Name of Director Authorised to Sign]
Director
DIN: [Insert DIN of Director Signing]
Conclusion:
Appointing the first auditor is a vital step for any newly incorporated private limited company in India. By following the defined steps and adhering to the statutory requirements, companies can ensure smooth compliance and avoid penalties. This guide provides a structured approach to understanding and executing this process, ensuring that businesses can focus on their growth and success.
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