How To Appoint An Auditor For Public Limited Companies?

Introduction

The appointment of a statutory auditor is an essential component of corporate governance for publicly traded corporations. The auditor is essential to guarantee the correctness, dependability, and transparency of financial reporting. The procedure for selecting auditors, the function of the audit committee, the importance of disclosure, and the broader ramifications for corporate governance in India will all be covered in this article.

Who is an Auditor in a Public Limited Company?

An auditor in a Public Limited Company is a professional accountant or a firm of accountants who is appointed to examine and verify the financial records and statements of the company. The primary role of an auditor is to provide an independent and objective assessment of the company’s financial position and performance. This helps to ensure the transparency, accuracy, and reliability of the financial information presented by the company.

First Auditor Appointment in a Public Limited Company

• According to Section 139(6), the Board must appoint the company’s first auditor within 30 days of incorporation.
• If the Board does not name the first auditor within the allotted time, an EGM must be held within 90 days to do so.
• The auditors will serve until the conclusion of the initial AGM.
• Procedure for Designating the Company’s First Auditor.
• Inform the potential auditor(s) that you intend to designate them as auditors and inquire as to whether they are qualified and not ineligible to serve in that capacity.
• Obtain the auditor’s approval and a certificate.
• If the audit committee is called for under Section 177, you must request its recommendation.
• Where a company is required to constitute the Audit Committee, the committee shall recommend the name of an individual or a firm as auditor to the Board for consideration in other cases.

How to Appoint an Auditor for Public Limited Companies?

Here are the general steps for appointing an auditor for public limited companies:

1. Annual General Meeting (AGM): The appointment of auditors is usually made at the Annual General Meeting (AGM) of the company. The AGM is typically held within a certain period after the end of the financial year.

2. Selection of Auditors: The shareholders, at the AGM, have the authority to appoint or reappoint auditors. The board of directors may make a recommendation, and shareholders may vote on the proposed appointment.

3. Board Recommendation: Before the AGM, the board of directors may recommend a firm of auditors for appointment. This recommendation is often based on the recommendation of the audit committee if the company has one.

4. Approval by Shareholders: Shareholders vote on the appointment of auditors during the AGM. A resolution is passed, and a certain level of approval (often a majority vote) is required for the appointment to be confirmed.

5. Filing with Regulatory Authorities: After the AGM, the company may need to file certain documents with the regulatory authorities, notifying them of the appointment of the auditors. This can include filing the resolutions passed at the AGM.

6. Communication with Auditors: Once appointed, the auditors will communicate with the company to plan and conduct the audit. They will review financial records, internal controls, and other relevant information to express an opinion on the financial statements.

7. Tenure of Auditors: There may be regulations governing the maximum tenure of auditors. In some jurisdictions, auditors are required to rotate after a certain number of years to ensure independence and fresh perspectives.

What is the Role of the Audit Committee?

The appointment of auditors involves the audit committee crucially. The audit committee is in charge of monitoring the financial reporting procedure, ensuring the accuracy of the company’s financial statements, and preserving the auditor’s independence. The audit committee’s responsibilities include the following:

Conclusion

The auditor appointment process for publicly Limited companies in India is a critical component of corporate governance. Compliance with regulatory requirements, the role of the audit committee, and the disclosure of relevant information ensure transparency, objectivity, and accountability. By adhering to robust appointment processes and disclosing essential details, companies uphold the principles of good corporate governance, ultimately bolstering stakeholder trust and confidence.