Who Appoints the First Auditor of a Company?

Who Appoints the First Auditor of a Company?. The appointment of a first auditor of the company is a critical step mandated by the Companies Act 2013. Within 30 days of incorporation, the Board of Directors must appoint a qualified auditor through a board resolution to ensure financial accuracy and compliance with regulatory standards. This process establishes financial governance and transparency, reducing potential legal and economic risks.
Role and Responsibilities of the First Auditor
A first auditor plays a vital role in maintaining the company’s financial integrity. Typically, a practicing Chartered Accountant (CA) or a CA firm is appointed to carry out statutory audits. Key responsibilities include:
• Auditing Financial Statements: Ensuring accuracy and compliance with accounting standards.
• Regulatory Compliance: Verifying adherence to the Companies Act, 2013.
• Risk Assessment: Identifying potential financial risks and advising management accordingly.
• Audit Report Preparation: Compiling findings and recommendations to promote financial transparency.
• Advisory Role: Offering guidance on financial matters, internal controls, and risk management.
Legal Framework for First Auditor Appointment
Under Section 139(6) of the Companies Act, 2013, a company must appoint its first auditor through a board resolution within 30 days of incorporation. This auditor holds office until the conclusion of the first Annual General Meeting (AGM). If the Board fails to appoint an auditor, the shareholders must make the appointment within 90 days at an Extraordinary General Meeting (EGM).
Appointment of First Auditor
The Board of Directors considers the recommendations of the Audit Committee, if applicable, before proposing the appointment of the first auditor to the company's members. If the Audit Committee's recommendation is sent back for reconsideration and it chooses not to revise its decision, the Board must document its reasons for disagreement and forward its own recommendation to the members.
For government companies, the first auditor is appointed by the Comptroller and Auditor-General of India within 60 days from the date of incorporation. If this appointment is not made within the given period, the Board of Directors must appoint an auditor within the next 30 days. The appointed auditor holds office until the conclusion of the first Annual General Meeting (AGM).
Appointment of Other Auditors
Auditors, other than the first auditor, are appointed by the company's members at a general meeting. The term of the appointed auditor begins at the conclusion of that meeting.
In the event of a casual vacancy due to resignation, the Board must recommend a new auditor, and the members must approve the appointment within three months. The appointed auditor remains in office until the next AGM. Additionally, for subsequent auditor appointments, the company is required to file Form ADT-1 within 15 days of the appointment.
Eligibility Criteria for First Auditor Appointment
To be eligible for appointment, the auditor must meet the following requirements:
• Be a practicing Chartered Accountant with a valid membership from ICAI.
• Hold a Certificate of Practice (COP), authorizing them to conduct audits.
• If a CA firm is appointed, the majority of its partners must be practicing CAs.
• The auditor must have relevant experience in statutory audits and financial statement analysis.
Process for First Auditor Appointment
A structured approach ensures a smooth appointment process:
Step 1: Shortlist Qualified Auditors
• Identify and evaluate experienced Chartered Accountants or firms.
• Seek their consent through a formal request letter.
Step 2: Obtain Auditor’s Consent
• Secure a written declaration confirming eligibility under Section 141 of the Companies Act, 2013 and The Chartered Accountants Act, 1949.
Step 3: Hold Board Meeting for Appointment
• Conduct a Board Meeting to discuss and approve the appointment.
• Decide on the auditor’s remuneration.
• Pass a board resolution confirming the appointment.
Step 4: Notify the Auditor
• Send a formal appointment letter signed by an authorized director.
Step 5: File Form ADT-1 with ROC
• File Form ADT-1 with the Registrar of Companies (ROC) within 15 days of appointment to complete compliance.
Filing Form ADT-1 for the Appointment of First Auditor
Form ADT-1 is an essential document that serves as an official intimation to the ROC regarding the appointment of the auditor. Key aspects include:
Due Date
• Must be filed within 15 days of the appointment to avoid penalties.
Procedure for Appointment of First Auditor of the Company
The following is the process for the appointment of first auditor of the company:
1. Obtain a Digital Signature Certificate (DSC) for the appointed auditor or a company director.
2. Download Form ADT-1 from the MCA portal.
3. Complete the form with details of the auditor and the board resolution.
4. Attach supporting documents, such as the auditor’s consent letter and board resolution.
5. Verify the accuracy of details before submission.
6. Submit the form on the MCA portal.
7. Pay the applicable filing fee based on the company's share capital.
Filing Fees for ADT-1
Fees depend on the company's authorized share capital:

Share Capital (Rs.)

Filing Fees (Rs.)

Up to 1,00,000

200

1,00,000 – 4,99,999
300

5,00,000 – 24,99,999
400

25,00,000 and above
500

Penalty for Late Filing of ADT-1
Failure to file ADT-1 within the stipulated timeframe attracts penalties:

Delay in Filing (Days)
 Penalty (Times of Normal Fees)

Up to 30
2x

31 – 60 
4x

61 – 90 
6x

91 – 180
10x

More than 180
12x

Consequences of Failure to Appoint an Auditor
If the Board fails to appoint an auditor within 30 days of incorporation, the company’s members must be informed. They can then appoint an auditor within 90 days at an Extraordinary General Meeting (EGM), and the auditor will hold office until the first AGM.
If an auditor is not appointed or re-appointed at an AGM, the existing auditor continues in office until a new appointment is made.
Auditor Appointment for Listed Companies
Listed companies must adhere to stricter regulations regarding auditor appointments. An individual can serve as an auditor for a maximum of one term of five consecutive years, while an audit firm can be appointed for up to two terms of five consecutive years each.
Auditor’s Powers and Responsibilities
An auditor is an independent professional engaged to assess whether a company's financial statements are accurate and free from material misstatements, fraud, or errors. The company is responsible for maintaining its books of accounts and preparing financial statements. To ensure independence, the auditor is prohibited from maintaining accounts or preparing financial statements for the company.
Auditor’s Resignation
An auditor intending to resign must formally notify the company and submit a resignation statement using Form ADT-3. This statement must be filed with the Registrar of Companies (RoC) within 30 days from the date of resignation.
Conclusion
The appointment of the first auditor is a crucial step in ensuring a company's financial governance and compliance. By adhering to legal mandates, meeting due dates, and filing Form ADT-1 correctly, companies can avoid penalties and maintain financial transparency. Proper planning and professional guidance will ensure a seamless process, laying the foundation for sound financial management.
FAQs
Q1. Who appoints the first auditor of a company?
Ans. The Board of Directors appoints the first auditor within 30 days of incorporation. If they fail, shareholders appoint the auditor within 90 days at an EGM.
Q2. What is the tenure of the first auditor?
Ans. The first auditor holds office until the conclusion of the first Annual General Meeting (AGM).
Q3. What happens if the first auditor is not appointed on time?
Ans. If the Board does not appoint an auditor within 30 days, shareholders must appoint one within 90 days at an EGM.
Q4. What is Form ADT-1, and when must it be filed?
Ans. Form ADT-1 is filed with the Registrar of Companies (ROC) within 15 days of appointing an auditor to ensure compliance.
Q5. What are the penalties for late filing of Form ADT-1?
Ans. Late filing penalties range from 2x to 12x the normal filing fees, depending on the delay period.
Q6. Who appoints the first auditor in a government company?
Ans. The Comptroller and Auditor-General of India (CAG) appoints the first auditor within 60 days of incorporation.

The appointment of a first auditor of the company is a critical step mandated by the Companies Act 2013. Within 30 days of incorporation, the Board of Directors must appoint a qualified auditor through a board resolution to ensure financial accuracy and compliance with regulatory standards. This process establishes financial governance and transparency, reducing potential legal and economic risks.

Role and Responsibilities of the First Auditor

A first auditor plays a vital role in maintaining the company’s financial integrity. Typically, a practicing Chartered Accountant (CA) or a CA firm is appointed to carry out statutory audits. Key responsibilities include:

• Auditing Financial Statements: Ensuring accuracy and compliance with accounting standards.

• Regulatory Compliance: Verifying adherence to the Companies Act, 2013.

• Risk Assessment: Identifying potential financial risks and advising management accordingly.

• Audit Report Preparation: Compiling findings and recommendations to promote financial transparency.

• Advisory Role: Offering guidance on financial matters, internal controls, and risk management.

Legal Framework for First Auditor Appointment

Under Section 139(6) of the Companies Act, 2013, a company must appoint its first auditor through a board resolution within 30 days of incorporation. This auditor holds office until the conclusion of the first Annual General Meeting (AGM). If the Board fails to appoint an auditor, the shareholders must make the appointment within 90 days at an Extraordinary General Meeting (EGM).

Appointment of First Auditor

The Board of Directors considers the recommendations of the Audit Committee, if applicable, before proposing the appointment of the first auditor to the company's members. If the Audit Committee's recommendation is sent back for reconsideration and it chooses not to revise its decision, the Board must document its reasons for disagreement and forward its own recommendation to the members.

For government companies, the first auditor is appointed by the Comptroller and Auditor-General of India within 60 days from the date of incorporation. If this appointment is not made within the given period, the Board of Directors must appoint an auditor within the next 30 days. The appointed auditor holds office until the conclusion of the first Annual General Meeting (AGM).

Appointment of Other Auditors

Auditors, other than the first auditor, are appointed by the company's members at a general meeting. The term of the appointed auditor begins at the conclusion of that meeting.

In the event of a casual vacancy due to resignation, the Board must recommend a new auditor, and the members must approve the appointment within three months. The appointed auditor remains in office until the next AGM. Additionally, for subsequent auditor appointments, the company is required to file Form ADT-1 within 15 days of the appointment.

Eligibility Criteria for First Auditor Appointment

To be eligible for appointment, the auditor must meet the following requirements:

• Be a practicing Chartered Accountant with a valid membership from ICAI.

• Hold a Certificate of Practice (COP), authorizing them to conduct audits.

• If a CA firm is appointed, the majority of its partners must be practicing CAs.

• The auditor must have relevant experience in statutory audits and financial statement analysis.

Process for First Auditor Appointment

A structured approach ensures a smooth appointment process:

Step 1: Shortlist Qualified Auditors

• Identify and evaluate experienced Chartered Accountants or firms.

• Seek their consent through a formal request letter.

Step 2: Obtain Auditor’s Consent

• Secure a written declaration confirming eligibility under Section 141 of the Companies Act, 2013 and The Chartered Accountants Act, 1949.

Step 3: Hold Board Meeting for Appointment

• Conduct a Board Meeting to discuss and approve the appointment.

• Decide on the auditor’s remuneration.

• Pass a board resolution confirming the appointment.

Step 4: Notify the Auditor

• Send a formal appointment letter signed by an authorized director.

Step 5: File Form ADT-1 with ROC

• File Form ADT-1 with the Registrar of Companies (ROC) within 15 days of appointment to complete compliance.

Filing Form ADT-1 for the Appointment of First Auditor

Form ADT-1 is an essential document that serves as an official intimation to the ROC regarding the appointment of the auditor. Key aspects include:

Due Date

• Must be filed within 15 days of the appointment to avoid penalties.

Procedure for Appointment of First Auditor of the Company

The following is the process for the appointment of first auditor of the company:

1. Obtain a Digital Signature Certificate (DSC) for the appointed auditor or a company director.

2. Download Form ADT-1 from the MCA portal.

3. Complete the form with details of the auditor and the board resolution.

4. Attach supporting documents, such as the auditor’s consent letter and board resolution.

5. Verify the accuracy of details before submission.

6. Submit the form on the MCA portal.

7. Pay the applicable filing fee based on the company's share capital.

Filing Fees for ADT-1

Fees depend on the company's authorized share capital:

Share Capital (Rs.)	Filing Fees (Rs.)
Up to 1,00,000	200
1,00,000 – 4,99,999	300
5,00,000 – 24,99,999	400
25,00,000 and above	500

Penalty for Late Filing of ADT-1

Failure to file ADT-1 within the stipulated timeframe attracts penalties:

Delay in Filing (Days)	Penalty (Times of Normal Fees)
Up to 30	2x
31 – 60	4x
61 – 90	6x
91 – 180	10x
More than 180	12x

Consequences of Failure to Appoint an Auditor

If the Board fails to appoint an auditor within 30 days of incorporation, the company’s members must be informed. They can then appoint an auditor within 90 days at an Extraordinary General Meeting (EGM), and the auditor will hold office until the first AGM.

If an auditor is not appointed or re-appointed at an AGM, the existing auditor continues in office until a new appointment is made.

Auditor Appointment for Listed Companies

Listed companies must adhere to stricter regulations regarding auditor appointments. An individual can serve as an auditor for a maximum of one term of five consecutive years, while an audit firm can be appointed for up to two terms of five consecutive years each.

Auditor’s Powers and Responsibilities

An auditor is an independent professional engaged to assess whether a company's financial statements are accurate and free from material misstatements, fraud, or errors. The company is responsible for maintaining its books of accounts and preparing financial statements. To ensure independence, the auditor is prohibited from maintaining accounts or preparing financial statements for the company.

Auditor’s Resignation

An auditor intending to resign must formally notify the company and submit a resignation statement using Form ADT-3. This statement must be filed with the Registrar of Companies (RoC) within 30 days from the date of resignation.

Conclusion

The appointment of the first auditor is a crucial step in ensuring a company's financial governance and compliance. By adhering to legal mandates, meeting due dates, and filing Form ADT-1 correctly, companies can avoid penalties and maintain financial transparency. Proper planning and professional guidance will ensure a seamless process, laying the foundation for sound financial management.

FAQs

Q1. Who appoints the first auditor of a company?

Ans. The Board of Directors appoints the first auditor within 30 days of incorporation. If they fail, shareholders appoint the auditor within 90 days at an EGM.

Q2. What is the tenure of the first auditor?

Ans. The first auditor holds office until the conclusion of the first Annual General Meeting (AGM).

Q3. What happens if the first auditor is not appointed on time?

Ans. If the Board does not appoint an auditor within 30 days, shareholders must appoint one within 90 days at an EGM.

Q4. What is Form ADT-1, and when must it be filed?

Ans. Form ADT-1 is filed with the Registrar of Companies (ROC) within 15 days of appointing an auditor to ensure compliance.

Q5. What are the penalties for late filing of Form ADT-1?

Ans. Late filing penalties range from 2x to 12x the normal filing fees, depending on the delay period.

Q6. Who appoints the first auditor in a government company?

Ans. The Comptroller and Auditor-General of India (CAG) appoints the first auditor within 60 days of incorporation.