Requirement under Companies Act, 1956
Every company registered in India is required to get its accounts audited by a practicing Chartered Accountant. Section 224 (1) of the Companies Act, 1956 states that every company, whether it is public or private, shall have an auditor to audit its accounts.
This audit is called statutory audit and through it the Companies Act ensures that the persons carrying on business with others money are accountable to them.
Appointment of Auditors
The appointment of auditor is mandatory in the Annual General Meeting for the following year. The auditors appointed at the Annual General Meeting hold the office from the conclusion of the Annual General Meeting at which he is appointed until the conclusion of the next Annual General Meeting. Thus, the Act seeks to ensure that the appointment of auditors is not in the hands of the directors and is vested in the general body of shareholders.
However, the first auditors of the Company are appointed by the Board of Directors within one month from the date of incorporation of a company. The auditors, so appointed, hold the office until the conclusion of the first annual general meeting of the Company. If the Board fails to appoint the first auditor, the company may do so at a general meeting.
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