# Role of Audit Committee in Auditor Appointment

Where a company is required to have an Audit Committee (AC) under Section 177, certain auditor-related matters must pass through the AC.

## Matters requiring AC's recommendation

For companies required to constitute an Audit Committee, the Board shall consider the recommendation of the Audit Committee in respect of:

1. Appointment of auditor

2. Re-appointment of auditor

3. Filling of casual vacancy in the office of the auditor

## Voluntary vs Mandatory AC — key distinction

Audit Committee Type	Effect
Mandatorily constituted (Section 177 requirement)	Board must consider AC's recommendation
Voluntarily constituted (where no statutory requirement)	Board may or may not consider its recommendation

## Important nuances

The AC's recommendation is not binding on the Board; the Board only needs to consider it.
If the Board disagrees with the AC's recommendation, the Board records reasons and proceeds; the matter then goes to shareholders.
For companies that are not required to constitute an AC but have done so voluntarily, this consideration requirement does NOT have statutory force.

## Quick recall

AC → recommends
Board → considers (mandatory consideration only if AC is mandatorily constituted)
Shareholders → appoint at GM

Worked example

### Example 1

Example 1:

XYZ Ltd. (listed company) needs to appoint a new auditor. Whose recommendation is required and what is its effect?

Answer: Being a listed company, an AC is mandatorily required. The AC recommends, and the Board must consider this recommendation. The final appointment is by shareholders at the AGM.

### Example 2

Example 2:

A small private company has voluntarily constituted an Audit Committee. Must the Board consider its recommendation for filling a casual vacancy?

Answer: No, not as a statutory requirement. Since the AC is constituted voluntarily (not under Section 177 mandate), the Board may or may not consider its recommendation.

⚠️ Common exam mistakes

Treating AC's recommendation as binding on the Board — it is to be 'considered', not blindly accepted.
Applying the AC consideration rule to companies with voluntary ACs — the rule applies only to mandatorily constituted ACs.
Forgetting that casual vacancy filling also requires AC consideration (not just fresh appointment / reappointment).

Bare-Act text Rule 3 read with Section 139(11) and Section 177 · Companies (Audit and Auditors) Rules, 2014 · click to expand

Where a company is required to constitute an Audit Committee under section 177, the committee, and, in cases where such a committee is not required to be constituted, the Board, shall take into consideration the qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor and whether such qualifications and experience are commensurate with the size and requirements of the company.

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Role of Audit Committee in Appointment / Reappointment / Casual Vacancy

Worked example

⚠️ Common exam mistakes