Article explains Manner of Rotation of Statutory Auditors under Companies (Audit and Auditors) Rules, 2014 read with Section 139 of Companies Act, 2013.
A. Section 139(2) and Rule 5 of the Companies (Audit and Auditors) Rules 2014– Maximum term for appointment of auditors
1. In case of every listed company;
2. All Unlisted companies having paid up share capital of Rs 10 Crore or more;’
3. All Private companies having paid up share capital of Rs 50 crore of more;
4 All companies having borrowings from financial institutions, banks or public deposit of Rs 50 Crore or more shall appoint or reappoint-
a. an Individual more than one term of 5 Consecutive years;
b. An Audit firm as auditor for more than 2 terms of 5 consecutive years;
B.Recommendation by Audit Committee Rule 6(1)
The name of the Audit Firm or Individual who may be appointed or replace the incumbent auditor on expiry of the term of such incumbent, shall be recommended by the Audit Committee to the Board of Directors of the Company.
C.Appointment of auditor in next auditor Rule 6(2)The Audit Committee shall recommend to the board in case company is required to constitute audit committee otherwise itself consider the matter for rotation of the auditors and makes its recommendation for appointment of the next auditor by the member in the AGM.D.Consideration of term of office in case of rotation of Auditor Rule 6(3)
For this purpose there are following cases;’
a. in case of auditors firm or individual auditor, the period for which the Individual or the firm held office before the commencement of the of the Act shall be taken into account for calculating the period of 5 years or 10 years, as the case me.
b. The incoming auditor shall not be appointed if he is related with the any outgoing auditors firm or individual auditors;
E.Explanation for Rotation of Auditor
a. A break in term for continuous 5 years shall be considered as fulfilling the requirement of rotation of auditors
b. if any audit firm whose partner was incharge or it and he also certify the financial statements of the company and he retires from the said firm and joins another firm, in such a case such other fir, shall also not eligible to be appointed for a period of 5 years.
F.Consecutive years
It means all the previous financial years for which the Individual auditor has been the auditor until there has been a break of 5 years or more.
G.Rotation in case of Joint Auditors
In such a case company may follow the rotation of auditors in such a manner that both or all the joint auditors, as the case may be do not complete their term in the same year.
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