How To Appoint And Remove A Company Auditor From Office (2023)

This article explains the role of a company auditor, which types of companies must appoint an auditor and the circumstances when an auditor is not required.

It also explains the procedure for appointing and removing auditors from office.


The role of the auditor

How is a company auditor appointed?

Removal of auditors

(Video) Removal and Resignation of Auditor I Section 140 I Removal of Auditor I Resignation of Auditor

How To Appoint And Remove A Company Auditor From Office (1)

The role of auditors

What is an auditor?

An auditor is a person or an organisation that conducts a review of the annual financial statements of a company and makes an independent report to the owners (also known as shareholders or members) as to whether the accounts:

  • have been properly prepared in accordance with the Companies Act
  • in the opinion of the auditor, give a 'true and fair' representation of the financial position and performance of the business

The auditor will also consider if the information given in the directors' report is consistent with the annual accounts.

If in the auditor's opinion, the accounts or directors' report does not comply with the Companies Acts, they will say so in the report.

Is an auditor only concerned with annual accounts?

Most audits are only of the annual financial statements - those subsequently lodged at the Registrar of Companies (Companies House).

However, there may be other reasons to produce audits more regularly such as on the request of significant investors.

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For large companies, such as those listed on a stock exchange, the auditors are usually present throughout the year, completing an audit each month or quarter so that by the end of the year there is less work to do on the annual financial statements. The advantages of this approach are that the audit can completed sooner (long audits can delay the publication of financial statements for which there are statutory filing deadlines), by people more familiar with what has happened throughout the year and with increased scrutiny.

An auditor may also be contracted to carry out other accounts-related work, from bookkeeping to completing tax returns to providing business advice.

However, an auditor must never take part in the management of the company.

Must all company accounts be audited?

Not all companies need to be audited.

Some companies qualify for exemption: small companies by asset value or turnover, dormant companies and other certain types of company.

To qualify for audit exemption as a small company, the company must meet the following three requirements:

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  • qualify as small (50 or fewer employees on average)
  • have a turnover of not more than £6.5 million
  • have a balance sheet total of not more than £3.26 million

Are all types of small companies eligible for the exemption?

A company that falls into any of the following categories must have its accounts audited.

  • a parent company or subsidiary undertaking (unless dormant for the period during which it was a subsidiary) except where the group:
    • qualifies as a small group or would qualify if all the bodies corporate in the group were companies; and
    • the turnover for the whole group is not more than £6.5 million net (or £7.8 million gross); and
    • the combined balance sheet total is not more than £3.26 million net (or £3.9 million gross)
  • a public company (unless it is dormant)
  • a company that at any time in the financial year in question was:
    • a business that is an authorised insurance company, a bank, an e-money issuer, a MiFID (ie Markets in Financial Instruments Directive) investment firm or a UCITS (ie Undertakings for Collective Investment in Transferable Securities) management company;
    • a company that carries on insurance market activity; or
    • a special register body as defined in section 117(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (c. 52) or an employers' association as defined in section 122 of that Act or Article 4 of the Industrial Relations (Northern Ireland) Order 1992 (S.I. 1992/807 (N.I. 5)).
  • a company where an audit is required by a member or members holding at least 10% of the nominal value of issued share capital, or holding 10% of any class of share or - in the case of a company limited by guarantee - 10% of its members in number.
  • some property management companies that would otherwise qualify for exemption may have to prepare audited accounts to comply with the terms of their lease.

What should a company do with the audited accounts?

Audited accounts must be sent to Companies House annually. Companies House publishes them publically so that the stakeholders in the business, including other businesses with which the company trades, can decide whether they wish to do business with the company or not.

Can my accountant be my auditor?

An auditor must be independent of the company, and therefore, a person cannot be appointed as an auditor if they are:

  • an officer or employee of the company or an associated company
  • a partner or employee of such a person, or a partnership of which such a person is a partner

If your accountant does not fall into one of the above categories and if they have a current audit-practising certificate issued by a recognised supervisory body then they may act as the company's auditor.

What and who are recognised supervisory bodies?

These are bodies recognised by the Secretary of State as having rules designed to ensure that auditors are of the highest professional competence. Each recognised body has strict regulations and a disciplinary code to govern the conduct of their registered auditors. The five recognised bodies are:

  • The Institute of Chartered Accountants of Scotland (ICAS)
  • The Institute of Chartered Accountants in England and Wales (ICAEW)
  • The Institute of Chartered Accountants in Ireland (ICAI)
  • The Association of Chartered Certified Accountants (ACCA)
  • The Association of Authorised Public Accountants (AAPA)

Appointment of auditors

How is a company auditor appointed?

The directors appoint the first auditor of the company. They then hold office until the end of the first meeting of the shareholders at which the accounts are laid before the members. At that meeting the members can re-appoint the auditor, or appoint a different one, to hold office from that date until the end of the next shareholders' meeting at which accounts are laid.

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However, private companies can pass an 'elective resolution' not to lay accounts before the members in a general meeting. If this is done, then the auditor has to be re-appointed, or a new one appointed, at another meeting of the company's members that must be held within 28 days of the accounts being sent to the members.

Private companies can also pass an elective resolution dispensing with the need to appoint an auditor every year. If that happens, the auditor already appointed remains in office without further formality until a resolution is passed to re-introduce annual appointment or to remove them as auditor.

The process is explained in detail, step by step, with copies of all the meeting minutes and notices in our pack of documents to appoint an auditor.

Removal of auditors

How is a company auditor removed from office

The members of a company may remove an auditor from office at any time during their term of office or decide not to re-appoint them for a further term.

They must give the company 28 days' notice of their intention to put a resolution to remove the auditor, or to appoint somebody else, to a general meeting. A copy of the notice of the intended resolution must be sent to the auditor, who then has the right to make a written response and require that it be sent to the company's shareholders.

If an auditor ceases for any reason to hold office, they must deposit a statement at the company's registered office. The statement should set out any circumstances connected with their ceasing to hold office that they consider should be brought to the attention of the members and creditors of the company.


If there are any such circumstances, the company must send a copy of the statement to all the shareholders unless a successful application is made to the court to stop this. If the auditor does not receive notification of an application to the court within 21 days of depositing the statement with the company, they must within a further 7 days send a copy of the statement to Companies House for the public record.

If there are no such circumstances, the auditor must deposit a statement with the company to that effect. This statement need not be circulated to the members.


How can an auditor be removed from office? ›

The plain reading of section 140 of the Act clearly stipulates that the auditor can be removed by passing special resolution after obtaining prior approval of the Central Government (powers delegated to Regional Director vide notification S.O. 1352(E) dated 21.05.

Who can remove an auditor from their position? ›

(1)The members of a company may remove an auditor from office at any time. (b)in accordance with section 511 (special notice of resolution to remove auditor). (b)of any appointment terminating with that as auditor. (b)in accordance with section 511A.]

How do I disengage an auditor? ›

Removal of an auditor of a company
  1. Step 1: Service of notice of intention and resolution to convene a general meeting.
  2. Step 2: Advice to the auditor and ASIC.
  3. Step 3: Representations by the auditor to the company.
  4. Step 4: Notice of the meeting and notice of nomination of a new auditor.

What is the procedure for resignation of auditor? ›

The auditor has to submit the resignation letter and form ADT-3 to the company and ROC. A board meeting will be organised with all the directors to effect the resignation. The company should obtain a consent letter from the new auditor firm under Section 139 and 141 of the Companies Act 2013.

Who appoints and remove the internal auditor? ›

Internal Auditor is appointed by the management and the remuneration is also fixed by the management. Internal auditor is removed by the management only but the statutory auditor can be removed by the shareholders only.

What are the rules regarding appointment of an auditor? ›

The First Auditor of a business other than a government business must be appointed by the Board within 30 days of its incorporation, according to section 139 of Companies Act, 2013. In the event that the Board fails, an EGM (Extraordinary General Meeting) must be called within 90 days to appoint the First Auditor.

What is the legitimate method for an auditor to leave office? ›

Resignation of Auditor​​

According to section 281 of the Companies Act 2016, an auditor may resign his office by giving a notice of resignation to the company at the company's registered office.

What is professional misconduct of an auditor? ›

CA in practice shall be deemed to be guilty of professional misconduct, if he expresses his opinion on financial statements of any business or any enterprise in which he, his firm or a partner in his firm has substantial interest 2. A member is a director […]...

Who has the power to appoint an auditor? ›

After incorporation of a company in the first annual general meeting, an Auditor must be appointed by the Board of Directors. The Auditor will typically hold term till the conclusion of 6th AGM or 5 years. The appointment of an Auditor can also be made for a period of 1 year, renewable at each annual general meeting.

Can an auditor resign at anytime? ›

How and when to lodge an application. An application may be lodged, using Form 342 Application for consent to resign as an auditor, at any time of the year subject to the requirements in RG 26. The auditor continues to hold office until consent has been granted.

What should you not say to an auditor? ›

Don't spring any surprises on the auditor. Auditors don't like surprises particularly if they have a potentially significant impact on the audit scope, potential findings, or the audit report. Don't provide any extraneous, unrequested information.

Which of the following conditions must be observed for the removal of an auditor to have effect? ›

Mandatory Requirements. Approval of Central Government is required for removal of auditor. The concerned auditor shall be given an opportunity of being heard. Company has to take Shareholders' approval within 60 days of receipt of approval of Regional Director.

What are the rules for appointment and removal of auditor? ›

Under Indian Companies Act, the appointment of an auditor is governed by section 228. The section provides that an auditor can be appointed only by a company's board of directors or by a resolution of the company's shareholders. A company cannot appoint its own auditor.

What is the penalty for resignation of auditor? ›

The application file shall include the reasons and other facts which are relevant to the resignation. If the auditor does not comply with the above provision he shall be punishable with a fine of Rupees fifty thousand or the remuneration received by the auditor, whichever is less.

What type of resolution is needed to remove an auditor? ›

510Resolution removing auditor from office

(1)The members of a company may remove an auditor from office at any time.

Who has the authority to remove the first auditor before the expiry of term? ›

Section 140 of the Companies Act provides the rule for removal of the auditors before the expiry of term. This has to be done by passing a special resolution and approval of the Board of Directors.

Can I change my auditor? ›

The Companies Act, 2013 permits removal or change of auditor before the completion of his term. The process for removal of auditors by passing a special resolution, after obtaining the previous approval of the Central Government.

Who appoints internal auditor in a company? ›

Internal auditor is appointed by the management or the board members of the company.

What is the period for appointing auditors? ›

In each financial year, there is a 'period for appointing auditors'. This is a 28 day period which starts to run on the date on which the audited accounts for the previous year were circulated to the members (as distinct from being signed off by the trustees).

What to consider before appointing an auditor? ›

6 key points to consider when appointing the auditor for your company
  • External audits are an invaluable tool for companies. ...
  • 1) Cost. ...
  • 2) Relationship. ...
  • 3) Reputation. ...
  • 4) Audit approach. ...
  • 5) Transparency. ...
  • 6) Expertise.

How long does it take to appoint an auditor? ›

The responsible entity of a registered scheme must appoint an auditor to the scheme within one month after the day on which the scheme is registered with ASIC. The initial appointment is advised to ASIC through lodgement of a Form 5137 Notification of appointment of scheme auditor.

What does the auditors have to do on removal resignation? ›

An auditor who has been removed is entitled to attend the general meeting at which his term of office would otherwise have expired and any general meeting at which it is proposed to fill the vacancy caused by his removal.

Who make recommendation for appointment and removal of external auditors? ›

external auditor should be recommended by the Audit Committee, approved by the Board and ratified by the shareholders.

What may cause an auditor to resign? ›

If, for example, the auditor has resigned because he suspects fraud, malpractice or mismanagement which he has not been able to resolve with the company's management, the 'interested parties' will feel that they need to know.

Can a company terminate an auditor? ›

Removal of Auditor

Before the auditor's term is out, the Companies Act of 2013 allows for dismissal or replacement. the procedure for dismissing auditors by passing a special resolution after receiving prior Central Government approval.

How do I complain about an auditor? ›

If it relates to any other audit you should complain to the auditor or firm first. If you are unhappy with the response of the auditor or firm, you should complain to their Recognised Supervisory Body (RSB).

How can auditors be disqualified? ›

Existence of close business relationship is considered as a criteria for disqualification of an auditor and for a business relationship to be considered as a close business relationship, there should be a material financial interest or the said business relations are significant to the client or its management.

How do auditors get appointed? ›

703. The initial appointment of an auditor of a company after its incorporation may be made by either the directors of the company or the company in general meeting.

Who Cannot be appointed as auditor of a company? ›

Point (i) – A person who is in full time employment elsewhere; Explanation – When a member is in full time employment – he cannot be in practice as per CA Act, 1949. If a person is not in practice – he is not eligible to be appointed as an auditor of a company.

How long should a company keep the same auditor? ›

As discussed above, public companies are required to rotate partners every five years. The AICPA believes that this procedure provides the necessary “fresh look” to ensure objectivity.

How long can a company keep the same auditor? ›

At the end of the maximum duration of 10 years, a tendering process should be organised by the audited entity. The Regulation lays down requirements for the selection and appointment of the auditor.

How long should you keep an auditor? ›

Once the auditors have completed their workpapers for a given client, they must retain that audit documentation for a certain period of time. The retention requirements of audit documentation are 5 years for nonissuers and 7 years for issuers.

What raises a red flag for an audit? ›

Some of the common audit red flags are excessive deductions or credits, unreported income, rounded numbers and more. However, the best protection is thorough records, including receipts and documentation.

What auditors Cannot do? ›

First and foremost, auditors do not take responsibility for the financial statements on which they form an opinion. The responsibility for financial statement presentation lies squarely in the hands of the company being audited.

What is the audit etiquette? ›

Have an attitude of honesty and humility. Apologize, correct course and move forward. There is no need to continually bring undue attention to the incident. Be tactful in your conversations with audit team members during fieldwork.

What is required for appointing an auditor other than the retiring auditor? ›

For appointing an auditor other than a retiring auditor a special notice is to be passed by the Board of Director under section 115 of the companies act 2013 proposing that a resolution will be passed in the next general meeting regarding the appointment of the new auditor.

How Comptroller and auditor General is appointed and removed what his tenure and the qualification needed to become as a comptroller and auditor general? ›

CAG is appointed by the President by warrant under his hand and seal and provided with tenure of 6 years or 65 years of age, whichever is earlier. CAG can be removed by the President only in accordance with the procedure mentioned in the Constitution that is the manner same as removal of a Supreme Court Judge.

What are the procedures for removing an auditor? ›

Removal of an auditor of a company
  • Step 1: Service of notice of intention and resolution to convene a general meeting.
  • Step 2: Advice to the auditor and ASIC.
  • Step 3: Representations by the auditor to the company.
  • Step 4: Notice of the meeting and notice of nomination of a new auditor.

What are the procedures for removal of auditors? ›

The members of a company may remove an auditor from office at any time during their term of office or decide not to re-appoint them for a further term. They must give the company 28 days' notice of their intention to put a resolution to remove the auditor, or to appoint somebody else, to a general meeting.

How do you ask an auditor to resign? ›

Form ADT-3 can be filed online on the Ministry of Corporate Affairs (“MCA”) website, or it can be filled and given or posted to the Registrar. After the auditor submits his resignation and Form AGT-3 to the company, a board meeting shall be organised with all the directors for effecting the resignation.

Can you remove an auditor by written resolution? ›

Resolution to remove Auditors

The shareholders of a company may remove an auditor from office at any time by passing an ordinary resolution at a general meeting in accordance with section 510 of the Companies Act 2006. Note that this cannot be done by written resolution.

When should you exit an audit? ›

1. When should we do the exit audit? Assuming your audit rights extend beyond the termination date, exit audits really need to be done after your last project with the agency has been completed.

What is auditors negligence? ›

Financial Statement Users: Negligence. The auditor has failed to use due care and has failed to identify a material misstatement. By not identifying a material misstatement, financial statement users are harmed, as they may rely on the published financials when making an investment decision.

What legal actions can be taken against auditors? ›

Auditors can be held liable for the tortious acts of others, with a tortious act considered an action that infringes on the rights of others. This is known as joint and several liability. held jointly responsible for the full amount of the damages being sought in a lawsuit.

What happens if a company fails to appoint an auditor? ›

in the case of failure of the Board to appoint such auditor, it shall inform the members of the company, who shall within 90 days at an extraordinary general meeting (EGM) appoint such auditor and such auditor shall hold office till the conclusion of the first annual general meeting.

What is auditor negligence? ›

Under tort law, an auditor may be liable to a customer for ordinary or gross negligence. Ordinary negligence is the failure to exercise due professional care, including adherence to professional standards, and gross negligence is the absence of slight care in the performance of an auditor's duties.

Can auditors be prosecuted? ›

Auditors are subjected to the countries laws like any other member of the state thus they can be prosecuted for criminal offences like insider trading and fraud.


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