Mandatory Rotation of Auditors :
The Companies Act, 2013 has introduced the system of rotation of auditors which is applicable to-
• all listed companies;
• all unlisted public 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 paid up share capital of below threshold limit mentioned above, but having public borrowings from financial institutions, banks or public deposits of rupees 50 crore or more.
The concept of rotation of auditors shall not apply to one person companies and small companies. All the companies mentioned above shall not appoint or re-appoint an individual as an auditor of the company for more than 1 term of 5 consecutive years. An individual auditor, who has completed his term of 5 consecutive years, shall not be eligible for re-appointment as auditor in the same company for 5 years from the date of completion.
All the companies mentioned above shall not appoint or re-appoint an audit firm as an auditor of the company for more than 2 terms of 5 consecutive years. An audit firm which has completed its 2 terms of 5 consecutive years shall not be eligible for re-appointment as auditor in the same company for 5 years from the completion of such terms. If 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 the 5 year period. In other words, if two or more audit firms have common partner(s), and one of these firms has completed its 2 terms of 5 consecutive years, none of such audit firms shall be eligible for re-appointment as auditor in the same company for 5 years.