Mandatory Rotation of Auditors :
Under the Section 139(2), the system of rotation of auditors has been introduced for the auditors of listed companies and other class of companies.
The other class of companies (specified companies) shall mean the following classes of companies excluding one person companies and small companies as prescribed under Rule 5 of the Companies (Audit and Auditors) Rules.
(a) all unlisted public companies having paid up share capital of rupees ten crore or more;
(b) all private limited companies having paid up share capital of rupees twenty crore or more;
(c) all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more The provisions for rotation of auditors under sub sections 2, 3 and 4 of section 139 are given below:
• If the auditor is an individual, he cannot be auditor of such a company for more than 5 consecutive years.
• If an audit firm/LLP is auditor of the company, it cannot be auditor of such a company for more than two terms of 5 consecutive years (i.e. 10 years)
• If an individual auditor who has completed his one term of 5 years, shall not be eligible for reappointment as auditor in the same company for 5 years from the completion of his term.
• In an audit firm/LLP which has completed its one term of 10 years, shall not be eligible for reappointment as auditor in the same company for 5 years from the completion of its term.
• 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.
• There is a transition period of three years, from date of enactment of the 2013 Act, to comply with this requirement. All listed companies or specified companies will have to comply with the above provisions relating to rotation of auditors within 3 years from the date of commencement of this Act i.e. within 31st March 2017.
• However there will be no effect on the right of the company to remove an auditor or the right of the auditor to resign from such office of the company because of the provisions mentioned above.
• The members of a company may also provide for the rotation of auditing partner and his team at specified intervals in the audit firm appointed by the company.
• The members of a company may also provide that the audit shall be conducted by more than one auditor.