New companies act 2013, has mandated rotation of individual auditor, audit firm and audit partner for all listed companies and certain private and unlisted public companies.
In this article we will be discussing applicability of rotation of company auditor and other provisions related to it.
As per the new companies act 2013, following companies are compulsorily required to appoint or reappoint company auditor on rotation basis;
- All listed companies;
- All unlisted companies having paid up share capital of rupees 10 crore or more;
- All private limited companies having paid up share capital of rupees 20 crore or more;
- All companies having public borrowing from financial institutions, banks or public deposit of rupees 50 crore or more.
Above said companies shall not be permitted to appoint or reappoint an individual chartered accountant as an auditor for more than one term of 5 consecutive years.
Similarly these companies are also not permitted to appoint or reappoint an audit firm for more than two terms of 5 consecutive years as company’s auditor.
This means, rotation of company auditor in case of individual will not be possible after completion of 5 continuous years and in case of audit firm it will not be possible after 10 continuous years.
However, such individual or audit firm which has been appointed as company auditor and has completed their terms as discussed above, can be appointed after a cooling-off period of 5 years from last appointment.
If the other audit firm who is getting appointed as auditor and the retired audit firm have any partner or partners in common as on the date of appointment, then both audit firms will not be eligible to get appointed as company auditor.
As per the provision related to rotation of company auditor, Companies existing before companies act 2013 and falling under any of the above categories are required to comply with above requirements within 3 yrs from the date of commencement of companies act 2013.