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Removal or Change of Auditors of a Company - Compliances
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Changing an auditor involves following the legal framework laid out in the Companies Act, 2013. The Act provides for both voluntary and mandatory changes, which may occur due to several reasons, such as auditor resignation, the end of the auditor’s term, rotation requirements, or removal by the company. Below is a detailed overview of the process and regulations for changing an auditor:
Change of Auditor under the Companies Act, 2013
A. Change Due to Rotation or Expiration of Term
Audit Committee Recommendation: In companies where an Audit Committee is mandatory, the committee recommends the new auditor’s appointment.
Board Meeting: The Board of Directors convenes a meeting to approve the recommendation for the appointment of the new auditor.
General Meeting Approval: The appointment of the new auditor must be approved by the shareholders at the company’s next Annual General Meeting (AGM).
Filing Form ADT-1: After appointing the new auditor, the company is required to file Form ADT-1 with the RoC within 15 days of the appointment.
B. Removal of Auditor Before Expiry of Term (Section 140(1))
Board Meeting: A Board Meeting is convened to consider the removal of the auditor before their term expires.
Application to Central Government: The company must file an application in Form ADT-2 to the Central Government within 30 days of the Board's resolution.
General Meeting Approval: After obtaining approval from the Central Government, the company must call a general meeting and pass a special resolution for the removal of the auditor.
Appointment of New Auditor: Once the auditor is removed, the company must appoint a new auditor in the same general meeting or a subsequent general meeting and file Form ADT-1 with the RoC for the appointment of the new auditor.
C. Auditor Resignation (Section 140(2))
Resignation Letter: The resigning auditor submits a resignation letter to the company.
Filing of Form ADT-3: The resigning auditor must file Form ADT-3 with the RoC within 30 days of resignation, specifying the reasons for their resignation.
Board Meeting: The Board of Directors must convene to fill the casual vacancy caused by the resignation.
If the vacancy is due to a resignation, the Board’s appointment must be approved by the shareholders at a general meeting within three months of the Board's decision.
Appointment of New Auditor: The company must appoint a new auditor to fill the casual vacancy, and the appointment must be approved by the shareholders in a general meeting.
Filing Form ADT-1: The company files Form ADT-1 with the RoC within 15 days of appointing the new auditor.
Procedure for Changing an Auditor
Mandatory Rotation: For certain classes of companies (listed companies, and other companies as prescribed), the Companies Act, 2013 mandates the rotation of auditors after a specified period.
An individual auditor cannot be appointed for more than one term of five consecutive years.
An audit firm can be appointed for a maximum of two terms of five consecutive years.
After the completion of the term, the company must rotate the auditor, and the outgoing auditor or audit firm cannot be reappointed for a period of five years.
Removal of Auditor (Section 140(1))
A company can remove its auditor before the expiry of their term by passing a special resolution in a general meeting.
Prior approval from the Central Government is required before proceeding with the removal. This is done by filing Form ADT-2 with the Registrar of Companies (RoC).
Types of Auditor Changes Rotation of Auditors (Section 139)
When changing an auditor, the following documents are generally required:
Board Resolution: A certified copy of the resolution passed by the Board of Directors approving the auditor’s removal, resignation, or appointment.
Special Resolution: If applicable, a copy of the special resolution passed at the general meeting for removal or appointment of the auditor.
Resignation Letter: If the change is due to the resignation, a copy of the resignation letter from the outgoing auditor.
Central Government Approval: If the auditor is being removed before the expiration of the term, approval from the Central Government (Form ADT-2) is required.
Form ADT-1: Filed with the RoC for the appointment of a new auditor.
Form ADT-3: Filed by the outgoing auditor with the RoC in case of resignation.
Documentation for Change of Auditor
Changing an auditor under the Companies Act, 2013 involves complying with specific legal requirements to ensure that the financial reporting of the company remains transparent and accountable. Whether due to mandatory rotation, removal, resignation, or filling a casual vacancy, the procedure for appointing a new auditor must adhere to the Act’s provisions to maintain statutory compliance
CONCLUSION
How do I change a company's auditor?
Company’s auditors can be changed by passing a board resolution and filing necessary forms with the ROC.
What is the reason for the change in auditor?
What is Section 140 of the Companies Act?
Do companies need to change auditors?