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Change of Auditor

A company auditor is a Chartered Accountant who reviews your companys financial records to ensure everything is accurate and legally compliant. In India, appointing a statutory auditor is required und

✓Reviewing and signing off on the financial statements
✓Ensuring compliance with applicable laws and standards
✓Identifying errors or inconsistencies in reporting
✓Reporting their findings to the shareholders
✓Completion of the auditors term under Section 139(2)

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What is a Company Auditor and Why Would You Change One?

<p>A company auditor is a Chartered Accountant who reviews your companys financial records to ensure everything is accurate and legally compliant. In India, appointing a statutory auditor is required under Section 139 of the Companies Act, 2013. While the role is largely regulatory, it also brings trust and transparency to your companys financial statements.</p>

<p>Sometimes, a change in auditor becomes necessary, not due to wrongdoing, but because of practical business needs, policy updates, or a shift in direction. However, its important to note that the new auditor must be a Chartered Accountant in full-time practice, not just any CA.</p>

<p>The statutory auditor provides an independent opinion on your financials. Their responsibilities include:</p>

<p>An auditor holds office for five years. However, companies may change auditors earlier by following a proper process. This often takes place during theAnnual General Meeting (AGM).</p>

<p>Note:To ensure independence and avoid potential conflicts of interest, certain companies must follow mandatory auditor rotation rules. This involves a cooling-off period before the same auditor or firm can be reappointed.</p>

<p>Companies may consider replacing an auditor for various reasons, such as:</p>

<p>Once the decision is made, companies must report the change of auditor in the directors report and mention it under the Notes to Accounts in the annual financial statements.</p>

<p>Note:It is mandatory to notify theRegistrar of Companies (ROC)of these changes: Form ADT-3 must be filed by the auditor upon resignation, and Form ADT-1 must be filed by the company to report the appointment of a new auditor.</p>

Reviewing and signing off on the financial statements
Ensuring compliance with applicable laws and standards
Identifying errors or inconsistencies in reporting
Reporting their findings to the shareholders
Completion of the auditors term under Section 139(2)
Resignation, death, or disqualification of the existing auditor under Section 140
Increased audit fees or reduced satisfaction with audit quality
Delays in submitting audit reports or a lack of responsiveness
Requirements

Eligibility Criteria

1

All registered entities requiring compliance services

Paperwork

Documents Required

✓Board Resolution for recommending removal, appointing an auditor in a casual vacancy, or proposing a new appointment.
✓Special Resolution (required if the auditor is removed before the expiry of their term).
✓Ordinary Resolution (for appointing or re-appointing the auditor at the AGM).
✓Application to Central Government in Form ADT-2 (mandatory if removing an auditor before their term ends).
✓Resignation Letter from the outgoing auditor.
✓Form ADT-3 (filed by the resigning auditor with the Registrar of Companies).
✓Consent Letter from the proposed new auditor, confirming their willingness to act.
✓An Eligibility Certificate from the proposed new auditor, confirming they meet legal requirements.
✓No-Objection Certificate (NOC) from the outgoing auditor (recommended as a professional practice, but not mandatory).
✓Form ADT-1 (to notify the Registrar of Companies about the appointment of the new auditor).
✓Form MGT-14 (required for filing special resolutions with the ROC).
Step by Step

Registration Process

1

Scenario 1: Removal of an Auditor Before Their Term Ends

Removing an auditor before their term concludes is a detailed and controlled process. Board Meeting:The Board of Directors holds a meeting to approve calling anExtra-Ordinary General Meeting (EGM)for auditor removal and to request approval from the Central Government.Application to Central Government:The company files an application in Form ADT-2 with the Central Government (Ministry of Corporate Affairs) within 30 days of the Board Resolution, providing clear reasons for the removal.Central Government Approval:The Central Government reviews the application and, if satisfied with the justification, grants approval.Shareholder Approval (Special Resolution):After receiving Central Government approval, the company must seek shareholder approval via a Special Resolution. This can be done in two ways: At an EGM specially called for this purpose.As an agenda item in the next AGM. Key points to note about the Special Resolution: It must be clearly stated in the meeting notice.Shareholders must vote in favour of the resolution.The resolution is passed only if the number of votes in favour is at least three times the number of votes against. Once approved, the company can proceed withfiling Form MGT-14with the Registrar of Companies within 30 days. Filing with RoC:Within 30 days of passing the Special Resolution, the company files Form MGT-14 with the RoC.Appointment of New Auditor:The company then proceeds to appoint a new auditor to fill the casual vacancy created.

2

Scenario 2: When an Auditor Resigns and Creates a Casual Vacancy

When an auditor resigns, a casual vacancy is created that needs to be filled. Auditors Resignation:The auditor submits a formal resignation letter to the company and files Form ADT-3 with the RoC within 30 days of their resignation.Board Meeting:The Board of Directors meets to acknowledge the resignation and to consider appointing a new auditor. The Board has the authority to fill the casual vacancy within 30 days of the resignation.Shareholder Ratification (if applicable):If the Board initially fills the casual vacancy, this appointment must be approved by the members at a general meeting convened within three months of the Boards recommendation.Filing with RoC:The company filesForm ADT-1with the RoC for the appointment of the new auditor within 15 days of the new auditors appointment.

3

Scenario 3: Changing an Auditor at the End of Their Term (Rotation or Non-Reappointment)

This is the most frequent and straightforward method for changing an auditor. Board Meeting:The Board of Directors recommends either the non-reappointment of the existing auditor or the appointment of a new auditor. This recommendation is often reflected in the directors report.Annual General Meeting (AGM):At the AGM, an Ordinary Resolution is passed by the shareholders for the appointment of the new auditor. This outlines the procedure for the change of auditor in an AGM.No-Objection Certificate (NOC):Though not legally required, its considered good practice for the new auditor to obtain aNo-Objection Certificate (NOC)from the outgoing auditor. This confirms there are no pending issues or dues and reflects professional courtesy.Filing with RoC:The company files Form ADT-1 with the RoC within 15 days of the AGM, officially notifying the appointment of the new auditor.

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Fee ComponentAmount
Up to ₹1,00,000200
₹1,00,001 to ₹5,00,000300
₹5,00,001 to ₹25,00,000400
₹25,00,001 to ₹1,00,00,000500
Above ₹1,00,00,000600
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Common Questions

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An ordinary resolution requires a simple majority (over 50%) and is used for routine matters like appointing or re-appointing an auditor at the end of their term. A special resolution needs at least 75% approval and is required for major decisions such as removing an auditor before their term ends.
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