Statutory Audit of Companies: Appointment, Rotation, Reporting Under Companies Act 2013

Statutory audit is a mandatory independent examination of a company's financial records under Section 138-148 of the Companies Act 2013. Unlike tax audit (income tax) or GST audit, a statutory audit is required for all companies registered under the Companies Act.

Appointment of Auditor (Section 139)

First Auditor

• Appointed by Board of Directors within 30 days of incorporation
• If Board fails: Members appoint at an EGM within 90 days
• Holds office until conclusion of first AGM

Subsequent Auditors

• Appointed at each AGM by shareholders (ordinary resolution)
• Individual auditor: one term of 5 consecutive years
• Audit firm: one or two terms of 5 consecutive years each (maximum 10 years)
• After completing maximum term: cooling-off period of 5 years before re-appointment

Companies Required to Follow Mandatory Rotation

• All listed companies
• Unlisted public companies with paid-up capital ≥ Rs.10 crore
• Private companies with paid-up capital ≥ Rs.50 crore
• All companies with public borrowings ≥ Rs.50 crore from banks/FIs

Filling Vacancy — Casual Vacancy

• Caused by resignation: Board can fill within 30 days; subject to shareholder ratification in next 3 months
• Caused by death/removal: EGM of shareholders to fill

Auditor Duties (Section 143)

Access Rights

Auditor has right to access all books of account, vouchers, documents (including in electronic form) at all times. Can require any director/officer/employee to provide information.

Mandatory Reporting Items

• Whether financial statements give true and fair view as per accounting standards
• Whether proper books of accounts maintained
• Whether balance sheet and P&L agree with books
• Adequacy of internal financial controls (IFC) over financial reporting
• Any material uncertainty about going concern
• Fraud reporting: If fraud > Rs.1 crore — report immediately to Central Government (within 60 days); below Rs.1 crore — report to audit committee/Board

CARO 2020 — Key Reporting Requirements

Companies Auditor's Report Order (CARO) 2020 requires the auditor to comment on:

Prohibited Services (Section 144)

To ensure auditor independence, a statutory auditor (and its network firms) cannot provide to the same audit client:

• Bookkeeping/accounting/payroll
• Internal audit
• Design/implementation of financial information systems
• Actuarial services
• Investment banking/investment advisory
• Rendering outsourced financial services
• Management/consulting services (other than audit-related)

ROC Filings

• ADT-1: Intimation of auditor appointment — filed by company within 15 days of AGM
• ADT-3: Resignation statement by auditor — filed within 30 days of resignation