Sunday, December 14

Companies Act 2013: Rotation of Auditors

The provisions related to rotation of auditor are applicable to those companies which are prescribed in Companies (Audit and Auditors) Rules, 2014, which prescribes the following classes of companies excluding one person companies and small companies, namely:


(a) all unlisted public companies having paid up share capital of rupees ten crore or more;
(b) all private limited companies having paid up share capital of rupees twenty crore or more;
(c) all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more.

As per section 139(2) of the Companies Act, 2013, no listed company or a company belonging to such class or classes of companies as mentioned above, shall appoint or re-appoint-

(a) an individual as auditor for more than one term of 5 consecutive years; and
(b) an audit firm as auditor for more than two terms of 5 consecutive years.

Cooling off period
As per the proviso to section 139(2) of the Companies Act, 2013:

(1) an individual auditor who has completed his term under clause (a), shall not be eligible for re-appointment as auditor in the same company for 5 years from the completion of his term;
(2) an audit firm which completed its term under clause (b), shall not be eligible for re-appointment as auditor in the same company for 5 years from the completion of such term.

Common partner(s) to the other audit firm whose tenure has expired:
As per the second proviso to section 139(2) of the Companies Act, 2013, as on the date of appointment, no audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same company for a period of 5 years.

Transitional period for the adoption of new Companies Act:
As per the third proviso to section 139(2) of the Companies Act, 2013, every company, existing on or before the commencement of this Companies Act, 2013 which is required to comply with provisions of this sub-section, shall comply with the requirements within 3 years from the date of commencement of this Act.

Right of the company to remove an Auditor:
As per the fourth proviso to section 139(2) of the Companies Act, 2013, it has also been provided that right of the company to remove an auditor or the right of the auditor to resign from such office of the company shall not be prejudiced.

Rotation between partners of audit firm:
Under section 139(3) of the Act, subject to the provisions of this Act, members of a company may resolve to provide that-

(a) in the audit firm appointed by it, the auditing partner and his team shall be rotated at such intervals as may be resolved by members; or
(b) the audit shall be conducted by more than one auditor.


Further, it is important to note that as per the section 139(4) of the Companies Act, 2013, the Central Government may, by rules, prescribe the manner in which the companies shall rotate their auditors in pursuance of section 139(2) of the Act.


Contributed by Shruti Agarwal

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