Thursday, November 1, 2012

Procedure for change/removal of auditors

Procedure for change in auditors 

Situation 1: New appointment in the AGM other than the retiring auditor

That is the annual accounts as laid before the AGM have been signed by the retiring auditor. The appointment will be for the current year.

Relevant Section: Section 225

1. The Company must receive a special notice from a member or shareholder not less than 14 days before the AGM intending his intention to move a resolution for changing the existing auditor of the company and for appointing another auditor in his place.

2.Such notice must be forwarded to the existing auditor of the Company.

3.A certificate is obtained from the new auditor that his appointment if made will be within the limits of Section 224 (1B)

4. Company must issue notice 21 days before the AGM about the proposal to change the auditors.

5. The retiring auditor has a right to make a representation to the company either in writing or orally. If written representation is received, the same must be enclosed with the notice or company to inform shareholders of the representation by publishing the same in a newspaper having appropriate circulation.

6. Three copies of the notice to be forwarded to the Stock Exchanges if Company is listed

7.Only after a proper resolution is passed in the AGM, the new Auditor shall be considered as duly appointed. New auditor to inform ROC about his appointment within one month of receipt of intimation from the Company about his appointment.

Situation 2: Removal of an Auditor before the expiry of his term

Relevant Section: Section 224 (7)

1.Hold a Board Meeting to approve draft application to the Central Government for removal of auditor

2.Make an application to the Regional Director seeking his approval for removal of auditor

3. On receiving approval, hold an EGM for seeking approval of members for removal of existing auditors and appointment of new auditors.

Situation 3: Auditor resigns before the expiry of his term

Relevant Section:  Section 224 (6)

1. Hold Board Meeting to consider the resignation of the existing auditor and convene an EGM for appointment of new auditor in his place.

2. Obtain a letter from auditor under section 224 (1B)

3. Hold EGM and pass ordinary resolution

4.Intimate auditor within 7 days of his appointment

5. Auditor to file Form 23B within 30 days of receiving such intimation

Situation 4 : Casual vacancy in case of death or disqualification of auditors

Relevant Section: Section 224 (6) (a)

 The Board may fill a casual vacancy in the office of an auditor caused by death or disqualification of such auditors

But while such vacancy continues, the remaining auditor or auditors may act.

Definition: The term casual vacancy has not been defined in the Companies Act, 1956. It simply means a vacancy created by the death, disqualification, resignation etc of the auditor of the company.

Case law:  
ICAI vs Jnanendranath Saikia [1955] 25 comp cas 53, 56 Assam

Deliberate omission on part of the company to appoint an Auditor in its AGM is not a casual vacany

Resolution: 
"RESOLVED THAT M/s............., Chartered Accounts (Firm Regn No...) be and are hereby appointed as statutory auditors of the Company to fill up the casual vacancy caused by the resignation of M/s-------Chartered Accountants, until the conclusion of the next Annual General Meeting of the Company at a remuneration as the Board of Directors may determine."
Meaning of casual vacancy in the office of auditor(s) The expression 'casual vacancy' has not been defined in the Companies Act, 1956. Simply stated, a casual vacancy in the office of an auditor means a vacancy caused in the office of an auditor by his death, disqualification, resignation, etc. It has been held in the case of the Institute of Chartered Accountants of India v Jnanendranath Saikia (1955) 25 Comp Cas 53, 56 (Assam) that casual vacancy is not a vacancy created by any deliberate omission on the part of the company to appoint an auditor at its annual general meeting.

Read more at: http://www.caclubindia.com/forum/resignation-by-statutory-auditors-26714.asp#.UJNZkWcZk1U
The expression 'casual vacancy' has not been defined in the Companies Act, 1956. Simply stated, a casual vacancy in the office of an auditor means a vacancy caused in the office of an auditor by his death, disqualification, resignation, etc. It has been held in the case of the Institute of Chartered Accountants of India v Jnanendranath Saikia (1955) 25 Comp Cas 53, 56 (Assam) that casual vacancy is not a vacancy created by any deliberate omission on the part of the company to appoint an auditor at its annual general meeting.

Read more at: http://www.caclubindia.com/forum/resignation-by-statutory-auditors-26714.asp#.UJNZkWcZk1U
The expression 'casual vacancy' has not been defined in the Companies Act, 1956. Simply stated, a casual vacancy in the office of an auditor means a vacancy caused in the office of an auditor by his death, disqualification, resignation, etc. It has been held in the case of the Institute of Chartered Accountants of India v Jnanendranath Saikia (1955) 25 Comp Cas 53, 56 (Assam) that casual vacancy is not a vacancy created by any deliberate omission on the part of the company to appoint an auditor at its annual general meeting.

Read more at: http://www.caclubindia.com/forum/resignation-by-statutory-auditors-26714.asp#.UJNZkWcZk1U

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