Importance of Appointment of Auditor in a New company

Running a business requires compliance and management of various laws and keeping things up to date. If you start a new business or already have a set business, you should pay a close attention to compliance requirement of your business. The appointment of an auditor to ensure compliance is vital for sustainability of your business. An auditor basically provides an assessment and examination of the financial records of the company making sure that everything is as per compliance. The Companies Act 2013 provides for the roles, duties, and appointment of the auditors in detail. The act calls for the private limited company registration and other kinds of companies to have their financial statement and records audited properly by a professional auditor. 

Auditor and their tasks

Before we get into the understanding that why an auditor is important for a new company or for that matter any business, it’s important we look into its roles and responsibilities. 

Accounts: An auditor is required to assess the account books of the firm. The accountant as a part of their work has access to the financial statements and accounting journals of the firms. In accordance with the law, the firm has to maintain transparency of records with the auditor to help them perform the task effectively as per law. 

Visits: The auditors have the important task in hand of collecting information and processing it. In this regard, they are required to visit the offices of a firm including the branches, regional offices, and head office. 

Attending Meeting Of Board: The auditor receives an invitation to the meeting of the company’s board at par with the Board of Directors of the company and other board members. The Annual General Meeting (AGM) is also attended by the auditor and he carries the importance much like any other member. 

Legal Assistance: As a part of their duty, the auditor if required is allowed to take the help of legal experts. An auditor can ask for the help of a lawyer or a legal expert on financial matters to assist him/her in performing duties. 

Eligibility and Appointment of Auditor

You cannot appoint anyone as an auditor for your company. The Companies Act 2013 provides for the eligibility of a person to be appointed as an auditor of a firm. As per the law, a person who is qualified as Chartered Accountant (CA) in accordance with the Chartered Accountants Act, 1949 is deemed eligible to be appointed as the auditor to a firm. Further, the law says that for a new company under section 139(6), an auditor should be appointed within 30 days of incorporation of the firm. 

If that is not possible for whatsoever reasons, then the act calls for the Extraordinary General Meeting (EGM). The summoning of EGM is for the appointment of the auditor and the whole process has to be done within 90 days. The auditor is generally appointed for a 5-6 years term. Here a practising CA with a certificate and a CA partners with a specific firm both can be appointed as auditor. In the latter case, the whole firm can also be appointed as the auditor. For the appointment of the auditor, the following process needs to be followed:

  1. ADT-1 has to be filled along with the ROC
  2. Copy of board resolution is to be attached
  3. A certificate from the side of the auditor claiming eligibility
  4. Written consent of the auditor is also required

The law also provides for the re-appointment of the auditor. However, this is subject to the condition that the auditor is willing to accept the position and the board members have cleared the appointment without any objection.  

In case of the death of a serving auditor, a new auditor has to be appointed within 30 days. The auditor so appointed holds the office till the end of the next AGM. If she/he wishes to continue and gets the board’s approval, then the auditor appointed such can carry on for the full tenure. 

Importance

Having seen the legal position, roles, responsibilities of the auditor, let us answer the core question – why is the appointment of an auditor important for a firm? Here are some of the major points that explains that:

  • Auditors provide assurance of the compliance of the financial record of the firm with legal standards. Thus, they act as the enforcers of the standards of auditing in business as set by the law of the country. 
  • They are required to provide the certification that the firm has a clean record dealing with financial matters. It also certifies that the firm has ethical financial conduct and is not involved in the manipulation of the data and reports. 
  • Auditors are like officers who certify the firm’s financial behaviour and provide an assurance of the same to the government. To ensure compliance, an audit certificate is issued by them which is used by firms while filing tax returns. 

Conclusion

Auditors are required to be appointed by a certain business entity based on certain criteria laid down by the government. If your company falls under the same, you are required to ensure the appointment of an auditor for your business. If you are not sure whether your business needs an auditor or not, it would ideal to consult with a professional CA for the same. Ignorance of the law cannot be claimed as a reason for the violation. Get in touch with our experts at Provenience to know more. 

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