Changing Your Company's Auditor: Resignation, Removal and Casual Vacancy

Auditors change for many reasons: a small firm winds down, the company outgrows its first auditor, fees become an issue, or the relationship breaks down. The Companies Act treats each kind of change differently, and some are deliberately harder than others to protect auditor independence. This guide explains resignation, filling a casual vacancy, and removing an auditor before their term ends.

When an Auditor Resigns

An auditor can resign at any time. Under Section 140(2), the resigning auditor must file Form ADT-3 with the ROC within 30 days of resigning, stating the reasons for the resignation and any other facts relevant to it.

From the company's side, the resignation creates a casual vacancy that has to be filled.

Filling a Casual Vacancy

A casual vacancy arises when the auditor's office falls vacant during the term, most often through resignation. Under Section 139(8):

1. The board appoints a new auditor within 30 days of the vacancy.
2. If the vacancy arose from a resignation, the appointment must also be approved by the shareholders at a general meeting within three months of the board's recommendation.
3. The new auditor holds office until the conclusion of the next AGM, where they can be appointed for a full term.
4. The company files ADT-1 for the new appointment.

As with any appointment, the new auditor's consent and eligibility certificate are needed first.

Removing an Auditor Before the Term Ends

The law makes removal deliberately formal, so a company can't simply replace an auditor who asks difficult questions. Under Section 140(1):

1. The board passes a resolution proposing the removal.
2. Within 30 days, the company applies to the Regional Director in Form ADT-2 for approval, stating the reasons.
3. The auditor is given a reasonable opportunity to be heard.
4. If the Regional Director approves, the shareholders pass a special resolution at a general meeting within 60 days of the approval.
5. The company appoints a new auditor and files ADT-1.

Because this takes time and requires good reasons, many companies instead manage a change at the end of the auditor's five-year term, when the shareholders can simply appoint someone else.

Appointing a Different Auditor at the End of a Term

When the five-year term ends, the shareholders can appoint a new auditor at the AGM rather than reappointing the existing one. The retiring auditor must be given notice of the proposal to appoint someone else, and has the right to make representations, which are circulated to the members. The new appointment is filed in ADT-1.

What Changes Don't Require

• There's no need to file anything with the ROC each year while the same auditor continues within their term.
• A change in the audit firm's partners, where the firm itself remains the auditor, doesn't need a new appointment.

Common Mistakes

• Not filling a casual vacancy within 30 days, leaving the company without an auditor.
• Forgetting shareholder approval for a vacancy created by resignation.
• Trying to replace an auditor mid-term by board resolution alone, without the Regional Director's approval.
• Not giving the outgoing auditor notice and the chance to make representations.

Getting Help

Think Filing handles every kind of auditor change: casual vacancy appointments, shareholder approvals, ADT-2 applications to the Regional Director, and the ADT-1 filings that follow.