Appointment of the statutory auditor.
Every company needs an auditor, and the clock starts thirty days after registration — not at the first year end, and not when the accounts are ready. The first appointment is a board act. Every appointment after that belongs to the members. Both run on short deadlines, and both need the auditor's eligibility established before, not after, the resolution is passed.
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Two appointments, two authorities, two deadlines.
The first auditor is appointed by the board, within thirty days of the company's registration, and holds office until the conclusion of the first annual general meeting. If the board fails to appoint within that window, the obligation passes to the members, who must appoint at an extraordinary general meeting within ninety days.
Every subsequent auditor is appointed by the members at an annual general meeting, and holds office from the conclusion of that meeting until the conclusion of the sixth annual general meeting after it — a five-year term. The annual ratification that used to accompany this was removed, so once appointed for a term the auditor simply continues; the company does not pass a resolution each year.
What sits under both is eligibility. Before any appointment the company obtains the auditor's written consent and a certificate that the appointment, if made, will be in accordance with the prescribed conditions and that the firm is not disqualified. The disqualifications are broader than most companies realise — covering indebtedness, guarantees, business relationships, securities held by relatives, a relative in a director or key managerial role, and the provision of certain other services to the company or its group.
Then there is rotation, which applies to listed companies and to prescribed classes of unlisted public and private companies above a capital, borrowing or turnover threshold. Where it applies, an individual auditor gets one five-year term and a firm gets two, followed by a cooling-off period. Companies that grow across the threshold acquire the obligation without noticing.
Four situations, and they are not interchangeable.
| Situation | Who appoints | By when, and for how long |
|---|---|---|
| First auditor of a new company | The board. If the board fails, the members at an EGM | Board within 30 days of registration; members within 90 days if it falls to them. Holds office until the conclusion of the first AGM |
| Appointment at the first AGM | The members, by ordinary resolution | At the AGM. Holds office from its conclusion until the conclusion of the sixth AGM thereafter |
| Reappointment at the end of a term | The members, by ordinary resolution | At the AGM at which the term ends, subject to rotation where it applies |
| Casual vacancy | The board — and, where the vacancy arose from resignation, the members as well | Board within 30 days; members within 3 months where it followed a resignation. Holds office until the conclusion of the next AGM |
In every case ADT-1 is filed within fifteen days of the meeting at which the appointment is made. Practice differs on whether the form is strictly required for the very first auditor appointed by the board, and many companies file it regardless — it costs little and it puts the appointment beyond argument.
Seven ways an appointment goes wrong.
The first auditor was appointed months late
The board has thirty days from registration. New companies routinely appoint an auditor in the following August when the accounts are being prepared, by which time the window closed, the obligation had already passed to the members, and the appointment made is not the appointment the Act contemplated.
Consent and eligibility came after the resolution
The written consent and the certificate of eligibility are obtained before the appointment. A consent signed later, when the ADT-1 is being assembled, does not support the resolution it is attached to, and the date mismatch is visible on the file.
ADT-1 was never filed
Fifteen days from the meeting, and the window runs from the meeting rather than from when the paperwork is ready. Companies that appoint an auditor at the AGM and then file nothing leave the appointment unrecorded on the register for the whole of the five-year term.
Nobody checked the disqualifications
Indebtedness above the prescribed limit, a guarantee given for a third party's borrowing, a business relationship, securities held by a relative above the permitted value, or a relative who is a director or in key managerial personnel. Any one of them disqualifies the firm, and in a small company with a long-standing accountant these are exactly the facts nobody asks about.
The company passed a ratification resolution every year
Harmless but revealing. Annual ratification of the auditor's appointment was removed from the Act and is no longer required. A company still doing it is working from an old template, which usually means other parts of its annual process are out of date too.
The rotation threshold was crossed unnoticed
Rotation applies to listed companies and to prescribed classes of unlisted public and private companies measured by paid-up capital, borrowings or turnover. A growing company crosses the line quietly, and the auditor who has been in place for a decade suddenly cannot be reappointed.
The auditor was also doing prohibited work
An auditor cannot provide certain services to the company, its holding company or its subsidiary — including bookkeeping, internal audit, actuarial services, investment advisory and management services. In small companies the same firm often does everything, and the audit engagement is the one that has to be separated.
What you receive.
From selection to a recorded appointment.
Identify which appointment this is
First auditor, appointment at an AGM, reappointment at the end of a term or a casual vacancy. Each has a different authority and a different deadline, and getting this wrong makes everything downstream wrong too.
Screen the proposed auditor
The firm and its partners are tested against the qualifications and disqualifications, the ceiling on the number of company audits, and the rotation position of the company. Prohibited services already being provided are identified now.
Obtain consent and the certificate
Written consent to the appointment and the certificate of eligibility, in the prescribed form and dated before the meeting. These are attachments to the filing, so they are collected properly rather than reconstructed.
The meeting
The board appoints where it is a first auditor or a casual vacancy. Otherwise the appointment goes on the AGM notice and the members pass an ordinary resolution, with remuneration fixed in the meeting or in the manner it determines.
File ADT-1
Within fifteen days of the meeting, with the resolution, the consent and the eligibility certificate attached, and tracked to approval. The company also gives the auditor written notice of the appointment.
Set the calendar
The audit timetable for the year, the date the five-year term expires, and the reappointment resolution diarised against the right annual general meeting so the term does not lapse quietly.
Four things to start.
The company's position
Age, size and status decide which rules apply and whether rotation is engaged.
- Certificate of incorporation and CIN
- Whether the company is private, public or listed
- Paid-up capital, borrowings and turnover
The audit history
Who has audited the company, since when, and under what resolution.
- The last appointment resolution and ADT-1
- The term the current auditor is serving
- Date of the last annual general meeting
The proposed firm
Named early, because eligibility is established before the resolution.
- Firm name and firm registration number
- Any relationship with the company, its directors or their relatives
- Any other services the firm provides to the group
Anything unusual
These change the route, and they are cheaper to raise now.
- Whether the previous auditor resigned or was removed
- Any period not yet audited
- Whether the company has ever had an auditor at all
What this looks like in Goa.
Almost no new company here appoints its auditor within thirty days of registration, because nothing is happening yet and the accounts feel a year away. It is the cheapest possible thing to get right and one of the most commonly missed.
Long-standing relationships are the norm in Goa, and they are exactly where the disqualification questions get awkward — a relative on the board, an unpaid balance, or the same firm keeping the books and auditing them.
Where one firm audits several companies in a family group, each company appoints separately, with its own resolution, its own consent and its own ADT-1. One meeting covering all of them is not one appointment.
Hospitality and construction companies that scale quickly cross the rotation thresholds without anyone tracking it. The first sign is usually the auditor raising it, which is late.
A company with no activity still needs an auditor, and the appointment gap is invisible precisely because nothing else is happening. These are the entities where a five-year term expires and nobody notices for two more years.
Usually needed alongside this.
Appointing an auditor, answered.
When must a new company appoint its first auditor?
Within thirty days of registration, by the board of directors. The first auditor holds office until the conclusion of the first annual general meeting.
If the board fails to appoint within that window, the obligation shifts to the members, who must appoint at an extraordinary general meeting within ninety days. That is a fallback, not an alternative — the board deadline is the one to work to.
How long does an auditor hold office?
An auditor appointed by the members at an annual general meeting holds office from the conclusion of that meeting until the conclusion of the sixth annual general meeting after it — in ordinary language, a five-year term.
The requirement to ratify that appointment at every intervening annual general meeting has been removed. A company that is still passing a ratification resolution each year is following an outdated precedent.
What is Form ADT-1 and when is it filed?
ADT-1 is the notice to the Registrar of the appointment of an auditor, filed by the company within fifteen days of the meeting at which the appointment is made.
It carries the resolution, the auditor's written consent and the certificate of eligibility as attachments. The window runs from the meeting, not from when the documents are assembled, which is why it is so often filed late.
What has to happen before the appointment?
Two documents, both from the proposed auditor and both dated before the resolution: a written consent to the appointment, and a certificate that the appointment, if made, will be in accordance with the prescribed conditions and that the firm is not disqualified.
The company should also satisfy itself independently on the disqualifications rather than relying only on the certificate. A consent obtained after the meeting does not support the resolution it is attached to.
Who can be appointed as auditor?
Only a chartered accountant, or a firm where the majority of partners practising in India are qualified for appointment. A limited liability partnership can be appointed, and where it is, only the partners who are chartered accountants may sign.
The disqualifications are extensive: a body corporate other than an LLP, an officer or employee of the company, a person indebted to the company above the prescribed limit or who has given a guarantee for a third party's indebtedness above the prescribed limit, a person or firm with a business relationship with the company, a person whose relative is a director or in key managerial personnel, and a person holding securities of the company — with a limited exception for a relative up to a prescribed value.
What is auditor rotation and does it apply to us?
Rotation applies to listed companies and to prescribed classes of unlisted public companies and private companies measured against paid-up capital, borrowings or turnover thresholds. Where it applies, an individual auditor may serve one term of five consecutive years and an audit firm two such terms, followed by a cooling-off period before reappointment.
Most small private companies are outside it. The situation to watch is a growing company crossing a threshold, because the obligation attaches without any event to announce it. The current thresholds are checked against your company's numbers rather than assumed.
Can the auditor also do our accounting?
No. An auditor may not provide certain services to the company, its holding company or its subsidiary — including accounting and book keeping, internal audit, design and implementation of financial information systems, actuarial services, investment advisory, investment banking and management services.
In small companies the same firm has often done everything for years. Separating the audit engagement from the rest is a genuine change and it is better made deliberately than discovered during a scrutiny.
How many companies can one auditor audit?
The Act sets a ceiling of twenty companies per person, and where a firm is appointed the limit applies per partner who is eligible to sign.
Certain categories are excluded from the count, including one person companies, dormant companies, small companies and private companies below a prescribed paid-up capital. Whether a particular firm has capacity is confirmed as part of the eligibility screening rather than taken on trust.
Who fixes the auditor's remuneration?
The members, in the general meeting, or in such manner as the meeting determines — which in practice usually means the members authorise the board to agree it.
For the first auditor appointed by the board, the board may fix the remuneration. The remuneration includes the fee plus expenses incurred in connection with the audit and any facility extended, but it does not include amounts paid for other services rendered at the company's request.
What if a company has never appointed an auditor?
It happens, usually on companies that were incorporated and then left alone. The fix is to appoint now — establishing which route applies on the facts — and to deal with the unaudited periods honestly rather than dating a resolution backwards.
Where the company has also not filed its annual returns and financial statements, that is the larger problem: three continuous years of non-filing disqualifies the directors, on every board they sit on. The auditor appointment is usually the first step in a wider clean-up rather than a standalone job.
Tell us the date of incorporation or the last AGM.
One of those two dates identifies which appointment you are making and which deadline applies. Add the proposed firm and we will confirm the eligibility position and the filing timetable the same day.