Appointment of auditors

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Preeti Yadav (Querist)
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22 November 2014 I have understood the rule of the companies falling under Sec 139(2). but the concept of rotation of auditors is not clear. please explain

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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24 November 2014 The system of Rotation of Auditors has been introduced in the case of Auditors of listed companies and other class of companies (specified companies) as may be prescribed by rules. This is provided in new section 139(2) as under.

(a) If the auditor is an Individual, he cannot be auditor of such a company for more than 5 consecutive years.

(b) If a firm/LLP is auditor, it cannot be auditor of such a company for more than two terms of 5 consecutive years (i.e. 10 years)

(c) In the case of an Individual who has been auditor for one term of 5 years, he cannot be reappointed by the company for the next 5 years. In the case of a firm/LLP who has been auditors of such a company for 10 years cannot be reappointed by the company for the next 5 years. It may be noted that any firm/LLP which has one or more partners who are also partners in the outgoing audit firm/LLP cannot be appointed as auditors during this 5 year period.

(d) After the Companies Act, 2013, comes in force, every existing listed or specified company will have to comply with the above provisions relating to Rotation of Auditors within 3 years from such commencement. for the purpose of Rotation the period for which the Auditor has been holding office as Auditor prior to the commencement of the New Act shall be taken into account in calculating the period of 5 or 10 consecutive years.

(e) Thus, if an Auditor (Individual) was Auditor of any specified Company for 5 consecutive years or a Firm has been Auditors of such a Company for 10 consecutive years prior to the New Act coming into force, such Auditors will be subject to the new provisions for Rotation. The provisions relating to Rotation will also apply to Branch Auditors.

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