Applicability and Requirement

• Every Indian subsidiary, whether private or public, must appoint a statutory auditor under the Companies Act, 2013.
  
• The statutory auditor conducts an independent audit of the financial statements annually.
  
• The audit ensures compliance with Indian accounting standards and regulatory laws.
  
• Appointment is mandatory regardless of the size or ownership of the subsidiary.
  
• Audit reports must be filed along with financials to the Registrar of Companies (ROC).
  

First Auditor Appointment

• The Board of Directors must appoint the first auditor within 30 days of incorporation.
  
• If the Board fails, the shareholders must appoint the auditor within 90 days in an Extraordinary General Meeting (EGM).
  
• The first auditor holds office until the conclusion of the first Annual General Meeting (AGM).
  
• The appointment must be recorded in the board meeting minutes and registered officially.
  
• The auditor must give a written consent and certificate of eligibility.
  

Subsequent Appointments and Tenure

• After the first AGM, the auditor is appointed by the members for a term of 5 consecutive years.
  
• The company must file Form ADT-1 within 15 days of the appointment.
  
• The appointment is subject to ratification at each AGM unless exempted by law.
  
• A listed or prescribed class of unlisted companies must rotate auditors every 5 or 10 years.
  
• Reappointment beyond the maximum term is not permitted without a 5-year cooling period.
  

Eligibility and Disqualification

• The auditor must be a Chartered Accountant or a firm of Chartered Accountants registered with ICAI.
  
• A person holding securities, indebted, or having a business relationship with the subsidiary is disqualified.
  
• A person who is an officer or employee of the company or its holding/subsidiary cannot be appointed.
  
• Relative of a partner in the audit firm cannot hold more than ₹1 lakh in securities of the company.
  
• The audit firm must not have direct or indirect business relationships that impair independence.
  

Rotation of Auditors

• Rotation is mandatory for listed companies and certain prescribed unlisted public companies.
  
• The same individual or audit firm cannot be reappointed in the same company for more than one term.
  
• Audit firms having common partners with outgoing firms are also disqualified for the same tenure.
  
• The rule ensures auditor independence and transparency in financial reporting.
  
• Subsidiaries of foreign or Indian companies must also comply with rotation if they fall under prescribed criteria.