What is a Change of Auditor?
A company may need to change its statutory auditor due to resignation, removal, or mandatory rotation. The Companies Act, 2013, lays down specific procedures (Sections 139 to 140) to ensure transparency and independence in this process.
Whether it's a casual vacancy due to resignation or a planned change at an AGM, strict adherence to timelines and ROC filings is crucial to avoid penalties.
Mandatory Auditor Rotation
For certain companies, rotating the auditor is mandatory to maintain independence. This applies to:
- Listed Companies.
- Unlisted Public Companies with paid-up share capital of ₹10 Crore or more.
- Private Limited Companies with paid-up share capital of ₹50 Crore or more.
- Companies with public borrowings/deposits of ₹50 Crore or more.
Rule: An individual auditor can serve for 1 term of 5 years, and an audit firm for 2 terms of 5 years each.
Process for Changing an Auditor
1. Resignation of Auditor (Casual Vacancy)
- Auditor's Duty: The resigning auditor must file Form ADT-3 with the ROC within 30 days of resignation.
- Board Meeting: The Board must meet within 30 days to fill the casual vacancy and appoint a new auditor.
- Shareholder Approval: The appointment must be approved by shareholders at a General Meeting within 3 months of the Board's recommendation.
- Company Filing: File Form ADT-1 with the ROC within 15 days of the appointment.
2. Removal of Auditor (Before Term Expiry)
- Pass a Board Resolution to remove the auditor.
- File Form ADT-2 to seek Central Government (Regional Director) approval within 30 days.
- Once approved, hold a General Meeting within 60 days.
- Pass a Special Resolution to remove the auditor.
- File Form ADT-1 for the new auditor.
3. Change at AGM (Rotation/Non-Reappointment)
- Issue a Special Notice for the AGM proposing the appointment of a new auditor.
- Obtain written consent and eligibility certificate from the new auditor.
- Pass an Ordinary Resolution at the AGM.
- File Form ADT-1 with the ROC within 15 days.
Essential ROC Forms
- Form ADT-1: Filed by the company to intimate the appointment of a new auditor.
- Form ADT-2: Filed by the company to seek Central Government approval for removing an auditor before their term ends.
- Form ADT-3: Filed by the resigning auditor to inform the ROC about their resignation.
Fees & Penalties
Filing Fees: The government fee for Form ADT-1 depends on the company's authorized capital (typically ₹200 - ₹600).
Penalties:
- For Auditor (ADT-3): Failure to file ADT-3 can lead to a penalty of ₹50,000 or the auditor's remuneration (whichever is less), extending up to ₹5 Lakhs.
- For Company: Late filing of ADT-1 attracts additional fees and potential penalties for non-compliance.
