Group auditors are often asked whether the Indian subsidiary can use the same audit firm network as the parent. The answer depends on the Companies Act rules on appointment, independence and rotation, which apply to the Indian entity directly.
First auditor and later appointments
The board appoints the first auditor within 30 days of incorporation. If it does not, the shareholders can do so at an extraordinary meeting. After that, the auditor is appointed at the annual general meeting for a term of five years, subject to ratification rules that have been relaxed in recent years. Check the current provisions.
Rotation
Mandatory rotation applies to listed companies and to certain classes of unlisted public companies and private companies that meet prescribed paid-up capital or borrowing thresholds. An individual auditor can serve for one term of five years and a firm for two terms. Verify whether the company falls within the prescribed class.
Independence
- Certain non-audit services cannot be provided by the auditor to the company, such as accounting and book-keeping, internal audit, and some management services.
- Group networks must be reviewed so that the same firm does not perform prohibited services for the subsidiary.
- The auditor must give a certificate of eligibility before appointment.
Practical points
- Diarise the 30-day first auditor deadline from incorporation.
- File the appointment form within the time allowed.
- Confirm the auditor's eligibility and independence in writing each year.
- Plan the transition well before the end of a term.
Treating the audit appointment as a compliance milestone, and not as a formality, avoids defective filings and delays in the accounts.
The author, N. Sudheer is M.Com., FCS, LL.B., Partner, A2 Consultants, Hyderabad. The views are personal and for general information only.
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