Audit and Auditors under the Companies Act, 2013

Introduction 

Chapter X of the Companies Act, 2013, spanning Sections 139 to 142, establishes the complete statutory framework governing auditors — their appointment, tenure, rotation, removal, resignation, eligibility, and remuneration. The central aim of these provisions is to secure genuine auditor independence while ensuring continuity of financial oversight. The framework carefully balances operational flexibility with structural safeguards, most notably through mandatory auditor rotation and a rigorous disqualification regime. 

Appointment of Auditors — Section 139 

• Every company must appoint an auditor at its first AGM, who holds office until the conclusion of the sixth AGM and thereafter until every sixth meeting. 
• Prior to appointment, the company must obtain the auditor's written consent and a certificate of eligibility under Section 141, and file a notice of appointment with the Registrar within fifteen days. 
• Listed and prescribed companies cannot appoint an individual auditor for more than one term of five consecutive years, or an audit firm for more than two terms of five consecutive years. A five-year cooling-off period applies after completion of the prescribed term. 
• For Government companies, the CAG appoints the auditor within one hundred and eighty days from the commencement of the financial year. 
• The first auditor of a non-Government company is appointed by the Board within thirty days of registration; on failure, members appoint at an EGM within ninety days. For Government companies, the CAG appoints within sixty days, failing which the Board and then the members act in sequence. 
• Casual vacancies are filled by the Board within thirty days; vacancies arising from resignation additionally require ratification at a general meeting within three months. 
• Where an Audit Committee exists under Section 177, its recommendations must be considered for all auditor appointments. 

Removal and Resignation — Section 140 

• An auditor may be removed before the expiry of term only by special resolution, with prior Central Government approval, and after giving the auditor a reasonable opportunity of being heard. 
• A resigning auditor must file a statement of reasons with the company and the Registrar within thirty days; Government company auditors must additionally file with the CAG. Non-compliance attracts a penalty up to two lakh rupees. 
• Special notice is required to appoint a person other than the retiring auditor at an AGM. The retiring auditor has a right to submit a written representation to be circulated to members. 
• The Tribunal may, suo motu or on application, direct a change of auditor if satisfied of fraudulent conduct. Such an auditor is barred from appointment for five years and is liable under Section 447. 

Eligibility and Disqualifications — Section 141 

• Only a chartered accountant is eligible for appointment; a firm may be appointed if the majority of its practising partners are chartered accountants. 
• Key disqualifications include: body corporates (other than LLPs); officers or employees of the company; persons holding securities or interest in the company beyond prescribed limits; persons indebted to or having a business relationship with the company; relatives of directors or KMPs; persons holding appointment as auditor of more than twenty companies; persons convicted of fraud within the preceding ten years; and persons rendering services prohibited under Section 144. 
• Post-appointment disqualification results in automatic vacation of office, treated as a casual vacancy. 

Remuneration — Section 142 

• Auditor remuneration is fixed at the general meeting or as determined therein. The Board may fix the remuneration of the first auditor. 
• Remuneration includes audit fees and expenses incurred during the audit but excludes payment for any other service rendered at the company's request. 

Conclusion 

Sections 139 to 142 of the Companies Act, 2013 together form a coherent regime designed to uphold auditor independence as a structural guarantee within corporate governance. The rotation mandate, disqualification grounds, CAG oversight of Government companies, and Tribunal powers against fraudulent auditors collectively reflect the legislature's intent to make financial scrutiny meaningful and credible.