Question

The statutory auditor of a company is appointed by

• A. the Managing Director of the company
• B. the Board of Directors of the company
• C. the Shareholders in the annual general meeting
• D. the Company Law Board

Hint:

Separate the rule for the very first auditor from the rule for every later, regular auditor.

Answer 1

The Correct Option is C

This question tests understanding of company law rules on who appoints a company's statutory auditor for its regular financial year.

1. the Managing Director of the company: A single director, even a managing director, does not have the power to appoint the statutory auditor on their own. This option is incorrect.
2. the Board of Directors of the company: The Board can only appoint the very first auditor right after incorporation, and that auditor's term lasts just until the first annual general meeting. The Board does not appoint the regular yearly auditor, so this is a partial trap, not the full answer.
3. the Shareholders in the annual general meeting: At each annual general meeting, the shareholders vote by ordinary resolution to appoint or reappoint the statutory auditor for the company, who then serves until the next annual general meeting. This is the standard, ongoing rule for auditor appointment.
4. the Company Law Board: This body gets involved mainly in special circumstances such as removing an auditor before their term ends, not in the routine yearly appointment process.

The correct option is the shareholders in the annual general meeting, since that is the body responsible for the regular appointment of the statutory auditor.

Let's summarize:

• The Board of Directors appoints only the first auditor, for a short initial term.
• From then on, shareholders appoint the auditor every year at the annual general meeting.

So, the statutory auditor of a company is appointed by the shareholders in the annual general meeting.