Section 139(2)-rotation of auditors

Save Share

This query is : Resolved

Neeta Parwani (Querist)
Follow

10 June 2016 If the outgoing auditor is the proprietorship concern of husband and incoming auditor is the partnership concern in which his wife is a partner, whether the partnership firm is eligible to be appointed as next statutory auditor? Whether it will be covered under the ambit of "same network" under section 139(2)?

CMA Ashutosh Kumar Gupta

CMA Ashutosh Kumar Gupta (Expert)
Follow

17 June 2016 Under the prescribed rules:
........The incoming auditor or audit firm shall not be eligible if such auditor or audit firm is associated with the outgoing auditor or audit firm under the same network of audit firms.
........Explanation I – For the purposes of these rules the term “same network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control.

Comments: (a) above rules use the term 'same network of audit firms'; in the instant case outgoing auditor is individual and incoming auditor is a firm; therefore, not forming exactly the same meaning of network of audit firms.
(b) Explanation clarifies that...under the same brand name, trade name or common control; here in the instant case first two brand name and trade name doesnt' apply but we need to cross examine the term 'common control' hence a view may be taken in the instant case as far as 'association' is concerned (rather a related party) if wife is the incharge of audit party and signs the financial statements.
Therefore, apparently it doesn't seem to be a case of 'same network of audit firms' provided (b) above.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now