Before appointing a statutory auditor, check the proposed auditor’s qualification and signing authority, test the auditor and relevant firm partners against the disqualifications in section 141 of the Companies Act, 2013, and confirm that neither the auditor nor covered related entities will provide prohibited services under section 144. Then check appointment capacity, rotation and tenure separately, and keep a dated record of the evidence and conclusion.
Start by identifying the auditor and the companies involved
Write down whether the proposed appointee is an individual or a firm or limited liability partnership (LLP). For a firm, identify its practising partners in India and the chartered accountant partners who would act and sign. Map the company, its holding company and subsidiaries, and any other entities relevant to the specific section 141 test or proposed services.
Section 141(1) requires an individual auditor to be a chartered accountant. A firm may be appointed in its firm name if a majority of its practising partners in India are qualified; only chartered accountant partners may act and sign on behalf of the appointed firm. Verify the qualification and proposed signing authority rather than treating the firm’s name or a general declaration as sufficient. See section 141 of the Companies Act, 2013.
Check each section 141 disqualification
Eligibility is a status and relationship test, not just a check of the proposed signatory. Apply the statute and prescribed rules to the auditor and relevant firm partners, and to the company relationships named by the law. Ask for facts and supporting declarations that let the company evaluate each category.
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- Employment and office: Check whether the auditor is an officer or employee of the company, and check the specified links involving partners or employees of an officer or employee.
- Securities and interests: Check for securities or interests held by the auditor and relevant persons in the company and the related entities covered by section 141. Apply any prescribed threshold only to the category for which the law provides it.
- Debt and guarantees: Check indebtedness and guarantees or security connected with another person’s indebtedness, using the relevant prescribed limits.
- Business relationships and relatives: Examine business relationships with the company and the specified relatives’ relationships, holdings, debt or guarantees as applicable. Do not assume that a threshold for one financial test resolves a different kind of relationship.
- Other disqualifying status: Check full-time employment elsewhere, the number of other company audit appointments, relevant fraud convictions within the statutory period, and the specified connections to entities providing section 144 services.
The categories above are screening prompts, not substitutes for applying the exact statutory wording to the facts. The Act and the Companies (Audit and Auditors) Rules, 2014 set out the relevant tests and prescribed limits.
Apply the prescribed monetary limits to the correct tests
| Check | Prescribed figure in the 2014 Rules | How to use it |
|---|---|---|
| Relative’s security or interest | ₹1 lakh | Use for the relative’s security or interest test described in section 141; the Act’s text also refers to ₹1,000 or a prescribed sum. The 2014 Rules prescribe ₹1 lakh. |
| Indebtedness | ₹5 lakh | Apply to the indebtedness test, checking the person and company relationships specified in the Act and Rules. |
| Guarantee or security connected with a third person’s indebtedness | ₹1 lakh | Apply to the separate guarantee or security test; do not conflate it with the indebtedness limit. |
These are statutory limits stated in the 2014 Rules, not blanket safe harbors for every possible conflict. Confirm the relevant person, entity and form of interest before concluding that a threshold applies.
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Inventory services prohibited by section 144
Section 144 bars an appointed auditor from directly or indirectly providing specified non-audit services to the company, its holding company or a subsidiary company. The check concerns both the work actually performed and the entity receiving it. Ask about services delivered through the auditor, firm, partners, or relevant connected entities rather than limiting the inquiry to the proposed signatory’s personal work.
- Accounting and bookkeeping services
- Internal audit
- Design and implementation of financial information systems
- Actuarial services
- Investment advisory or investment banking services
- Outsourced financial services
- Management services
- Other services prescribed under the Act
Compare the auditor’s service inventory with section 144 of the Companies Act, 2013. Where a service description or indirect relationship is uncertain, assess the actual arrangement against the current law rather than relying on its label.
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Section 141(3)(g) addresses whether the auditor has more than 20 company audit appointments, subject to the Act’s exclusions and counting rules. This is an appointment-capacity test. It is not the same as the rotation rules in section 139(2).
For the classes of companies covered by section 139(2), an individual auditor may serve one consecutive five-year term; an audit firm may serve two consecutive five-year terms, followed by a cooling-off period. Establish whether the company falls within the relevant class and apply the statutory counting and related-entity rules before reaching a result. Do not use the 20-appointment test as a proxy for rotation eligibility.
Both the capacity limit and the rotation terms are in the Companies Act, 2013. The figures are statutory limits, not empirical estimates of auditor workload or independence.
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The Audit Committee or Board, as applicable, should consider the proposed auditor’s qualifications and experience in light of the company’s size and requirements. The Companies (Audit and Auditors) Rules, 2014 also call for regard to professional-conduct orders or proceedings before the Institute of Chartered Accountants of India, a competent authority or a court. These selection considerations complement, but do not replace, the statutory disqualification checks.
- Collect the facts: Obtain the auditor or firm details, relevant partner and signing-partner information, declarations about relationships and financial interests, a list of other audit appointments, and a service inventory covering the relevant company group.
- Test each category: Record the applicable section 141 test, the people and entities considered, any prescribed threshold used, and the facts supporting the result. Separately record the section 144 service review and the capacity and rotation conclusions.
- Review conduct and qualifications: Record the qualification and experience assessment and the professional-conduct information considered by the Audit Committee or Board, as applicable.
- Resolve uncertainties before appointment: Escalate disputed relationships, unclear service arrangements, or difficult counting questions for review against the current statute, rules and company-specific facts.
- Retain a dated file: Keep the declarations, documents reviewed, group mapping, calculations, service inventory, unresolved issues and the final conclusion, with the date each was assessed.
Verify that the legal text is current
The official MCA Act PDF and 2014 Rules notification are primary sources, but the cited Rules PDF is not established here as a fully consolidated current version. India Code’s legislation index for the Act reports that its page was last updated on 22 April 2019. Before relying on a threshold, section wording, company-class rule or commencement position for a live appointment, check current amendments and commencement notifications. The India Code index is available at The Companies Act, 2013.
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