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Section 139: Appointment of Auditor under Companies Act, 2013

Under the Companies Act 2013, the appointment of an auditor for a company is governed by Section 139. The main provisions of Section 139 regarding the appointment of an auditor are as follows:

  1. First Auditor: The first auditor of a company shall be appointed by the Board of Directors within 30 days of the date of registration of the company. If the Board fails to appoint the first auditor, the members of the company can do so within the next 90 days.
  2. Subsequent Auditor Appointment: After the first AGM, subsequent auditors are appointed by the members (shareholders) of the company. The appointment of auditors is done through an ordinary resolution passed in the AGM.
  3. Term of Appointment: Very company shall, at its annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of sixth annual general meeting and there after till the conclusion of every sixth meeting.
  4. Rotation of Auditors: The Act requires the rotation of auditors to ensure independence and objectivity. The rotation of auditors is applicable to the following companies:
    • a. Listed Companies: Every listed company is required to rotate its auditors.
    • b. Certain Classes of Companies: Unlisted public companies have a paid-up share capital of Rs. 10 crores or more, or Private Companies have a paid-up share capital of Rs. 50 crores or more or company have borrowed money or deposits of Rs. 50 crores or more.
  5. Maximum Term: The maximum term for which an individual or an audit firm can act as an auditor in the same company is prescribed as follows:
    • Individual Auditor: An individual auditor can be appointed for a maximum of one term of five consecutive years. After the completion of five years, a cooling-off period of five years is required before they can be reappointed as the auditor of the same company.
    • Audit Firm: An audit firm (including Limited Liability Partnership) can be appointed for a maximum of two terms of five consecutive years each. After the completion of two terms, a cooling-off period of five years is required before the same audit firm can be reappointed as the auditor of the same company.
  6. Qualifications and Disqualifications: The following persons are disqualified from being appointed as an auditor of a company:
    • a body corporate
    • an officer or employee of the company
    • a person who is a partner or in employment of an officer or employee of the company
    • a person who has a business relationship with the company
  7. Eligibility Certificate: The auditor of a company must be a Chartered Accountant who holds a certificate of practice.
  8. Auditor’s Report: The appointed auditor is responsible for examining the company’s financial statements and preparing an auditor’s report. The auditor’s report provides an opinion on the true and fair view of the company’s financial position and compliance with applicable accounting standards.

It’s important to note that the specific requirements for auditor appointment may vary based on the type of company, its size, and other factors. It’s advisable to consult a qualified professional, such as a company secretary or a chartered accountant, for accurate advice tailored to a specific situation.

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