Appointment of First Auditor
The Companies Act of 2013 says that every company must appoint its auditor within a certain time frame. This is really important because the Companies Act of 2013 wants to make sure that companies are transparent so that they report their finances properly and that the company is accountable from the start of its first financial year. The Companies Act of 2013 is very clear, about this.
This guide tells you about the appointment of the auditor. It explains the rules that govern this process. You will learn about the time frames you need to follow and the steps you have to take. The guide also talks about the appointment of the auditor in a way that is easy to understand and actually use. It points out mistakes people make when they appoint the first auditor.
What Is the Appointment of First Auditor?
The first auditor is the person a company chooses as its auditor right after its incorporation. This is different from the auditors that come later. The first auditor is chosen by the Board of Directors or subscribers to the memorandum of the company.
The first auditor has an important job. This person is in charge of checking the company’s statements. They do this from the day the company was formed until the first Annual General Meeting or AGM is over. The first auditor checks the statements to make sure everything is correct. This is a responsibility for the first auditor of the company.
The company appoints an auditor to make sure the companys accounts are done correctly and checked properly following the rules of the Companies Act 2013 right from the start. The first auditor helps the company follow these rules so the companys accounts are maintained and audited correctly as, per the Companies Act, 2013.
Legal Provision Governing Appointment of First Auditor
The appointment of the auditor is done according to the rules in Section 139(6) of the Companies Act 2013. The Companies Act 2013 has rules, for the appointment of the first auditor.
As per the law:-
- The Board of Directors has to choose the auditor for the company within 30 days from the date when the company was incorporated. The Board of Directors will select this auditor and they have to do it quickly so the first auditor is in place within 30 days, from the date of incorporation of the company.
- The Board has to choose an auditor within a time. If the Board does not do this the members/shareholders have to choose the auditor. They have to do this within 90 days. They will do this at a meeting called an Extraordinary General Meeting or EGM for short. The members will pick the auditor at this EGM.
- The first auditor will be, in this position until the first Annual General Meeting is over. The first auditor has to do their job for this time until the first Annual General Meeting comes to an end.
- This rule is, for every company no matter how big or small they are or how much money they make.
Applicability: Who Must Appoint a First Auditor?
The appointment of first auditor is mandatory for:
Private Limited Companies
Public Limited Companies
One Person Companies (OPC)
Section 8 Companies
Even if the company has:
No revenue
No transactions
No active operations
the appointment of first auditor is still compulsory under the Companies Act, 2013.
Time Limit for Appointment of First Auditor
Understanding the timeline is critical to avoid non-compliance.
| Authority | Time Limit |
|---|---|
| Board of Directors | Within 30 days of incorporation |
| Shareholders (if Board fails) | Within 90 days via EGM |
Failing to comply within these timelines can attract penalties and create compliance risks during future audits or funding due diligence.
Who Can Be Appointed as the First Auditor?
As per the Companies Act, 2013, the first auditor can only be a Chartered Accountant or a firm of Chartered Accountants. The individual or firm must be a member of the Institute of Chartered Accountants of India (ICAI) and must hold a valid Certificate of Practice (COP).
Only such qualified Chartered Accountants are legally eligible to be appointed as the first auditor of a company. Experience in accounting, auditing, and financial matters is essential, as the auditor must exercise due care, professional judgment, and independence while conducting the audit.
The first auditor cannot be an employee of the company. The appointment must be made of an independent professional who is capable of performing the audit objectively and in accordance with auditing standards and legal provisions.
In summary:
- The first auditor must be a Chartered Accountant (individual or firm)
- Must be a member of ICAI
- Must hold a valid Certificate of Practice
- Must be eligible under Section 141 of the Companies Act, 2013
- Not be disqualified due to conflict of interest
- Provide written consent and eligibility certificate
Role and Responsibilities of the First Auditor
The first auditor is really important when it comes to keeping track of money and making sure everything is done properly. The first auditor has a lot of jobs to do these include:
- Auditing the books of accounts from incorporation
- Verifying financial statements
- Ensuring compliance with accounting standards
- Reporting true and fair financial position
- Identifying irregularities or non-compliance
Step-by-Step Process for Appointment of First Auditor
The process for appointing the first auditor is fairly simple if done on time. After incorporation, the Board of Directors passes a resolution to appoint the auditor and obtains their written consent. Once this is done, the appointment is recorded in the company’s records, completing the compliance requirement.
Identify a Qualified First Auditor
The first step is to identify and select a qualified first auditor for the company. Choosing the right auditor is important, as the auditor is responsible for examining the company’s financial records and ensuring compliance with applicable laws.
The auditor must be eligible under the Companies Act, 2013. Only a Chartered Accountant (CA) or a firm of Chartered Accountants holding a valid Certificate of Practice issued by the Institute of Chartered Accountants of India (ICAI) can be appointed as the first auditor.
While selecting the auditor, consider the following:
- The auditor should be a qualified Chartered Accountant or CA firm
- The auditor should have relevant experience in auditing
- The auditor should be familiar with the nature and size of the business
- The auditor should be independent and not an employee of the company
Obtain Consent and Eligibility Certificate
The person who is going to do the audit must give us some things. The proposed auditor must provide:
- Written consent to act as auditor
- Certificate confirming eligibility under Section 141
Conduct Board Meeting
The Board of Directors passes a resolution appointing the first auditor.
Prepare Required Documentation
Prepare Required Documentation. We need to prepare all the required documentation to move.
This includes:
- Board resolution
- Auditor consent letter
- Eligibility declaration
Maintain Statutory Records
While Form ADT-1 is not mandatory for first auditor appointment, proper internal records must be maintained for compliance and audit purposes.
Is Form ADT-1 Required for First Auditor Appointment?
This is a common point of confusion for many companies. While Form ADT-1 is mandatory for the appointment of auditors in general, it is not required for the appointment of the first auditor.
Difference Between First Auditor and Subsequent Auditors
| Aspect | First Auditor | Subsequent Auditor |
|---|---|---|
| Appointed by | Board of Directors | Shareholders |
| Time of appointment | After incorporation | At AGM |
| Tenure | Till first AGM | 5 years |
| Filing requirement | Not Mandatory | Mandatory |
Why Appointment of First Auditor Matters for Startups
For startups and new companies, early compliance builds a strong foundation.
Benefits include:
- Clean financial records from day one
- Easier funding and due diligence
- Reduced compliance risks
- Better corporate governance
How My Legal Business LLP Can help?
At My Legal Business LLP, we take a compliance-first approach. Our focus is on accuracy, clarity, and timely execution.
We assist you by:
- Reviewing eligibility of the proposed auditor
- Preparing board resolutions and documentation
- Ensuring compliance with Companies Act requirements
- Avoiding unnecessary filings or errors
- Supporting you through early-stage corporate compliance
Our process is simple, practical, and aligned with current MCA practices.
Frequently Asked Questions
Is appointment of first auditor mandatory?
Yes, it is mandatory for every company under the Companies Act, 2013.
Is Filling of ADT-1 for appointment of first auditor mandatory?
No filling of Form ADT-1 for appointment of first auditor is not mandatory.
What is the deadline for appointment of first auditor?
The Board has to choose the auditor for the company within thirty days of when the company is formed.
Is it possible to do a change-out on an appointed auditor?
Yes, however a company must follow established guidelines and obtain authorization from its shareholders before any changes are made.
How long does the first auditor remain in office?
The first auditor holds office from the date of appointment until the conclusion of the company’s first Annual General Meeting.
Who appoints the first auditor if the Board fails to do so on time?
If the Board does not appoint the first auditor within 30 days of incorporation, the shareholders must appoint the auditor in an Extraordinary General Meeting.
