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1. We have been the Statutory Auditors of XYZ Private Limited for 20 years now.  Can we sign the financial statements as auditors for YE March 31, 2015.  Or should be pave way for another firm on account of Audit rotation. 

Although Sec  139(2)  makes it mandatory for firms to be rotated, there is a three year time frame from the date of notification of this section viz April 1, 2014

2. Does rotation apply to private limited companies

Rotation is applicable to the following classes of Companies.  It applies to Private Companies, if as below

Type of company

Paid up share capital

Public Borrowing from banks / FI’s OR Public deposits

Listed Companies

All

All

Unlisted public companies

Rs 10 Crore or more

OR

Rs 50 Crores or more

Private limited companies

Rs 20 Crore or more

OR

Rs 50 Crores or more

Rotation of Auditors will not apply to the following classes of Companies

- One Person Companies

- Small Companies

3. As of what date should the above limits be reckoned

The Act has not provided the date – end of financial year or audited financials or any time during the year.  Hence a conservative interpretation will be necessary.  The exact wording of the rules is as under

For the purposes of sub-section (2) of section 139, the class of companies shall mean the following classes of companies excluding one person companies and small companies:- 

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.

4. For calculating the five year term or the ten year term, do we have to include the past years when we have been the auditors of the Company or is it 5 / 10 more years from the date of commencement of the Act

The past years for which an individual / firm have served as auditors needs to be included for the purpose of computation of tenure restrictions

5. My client has a loan of Rs 55 crores this year but is proposed to be repaid next year.  Will they move out of the rotation threshold next year

As per a simple reading of the Act , they will not be subject to rotation and if the previous auditor has retired, he can be reappointed although they may have not taken a 5 year break.  This is one possible interpretation 

6. Is a compulsory break of 5 years needed.

The rule reads as under-

a break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation; 

7. A Company has Joint Auditors for the last 35 years.  Should they both not retire in the same year

The rules provide as under and provide for an option so that both auditors do not complete their term in the same year

Where a company has appointed two or more individuals or firms or a combination thereof as joint auditors, the company may follow the rotation of auditors in such a manner that both or all of the joint auditors, as the case may be, do not complete their term in the same year Where a company has appointed two or more individuals or firms or a combination thereof as joint auditors, the company may follow the rotation of auditors in such a manner that both or all of the joint auditors, as the case may be, do not complete their term in the same year

8. Can a Company extend one auditor beyond the permitted period so as to provide for the Joint Auditors not retiring in the same year

The Act or the Rules do not provide for any relaxation in terms for Joint Auditors.  One of the auditors may be encouraged to retire, say a year ahead of the other

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