Govt makes rotation of Auditors mandatory under new Companies Law
PrintThe corporate affairs ministry on Monday notified rules making the rotation of auditors mandatory for listed companies, unlisted companies with a share capital for more than Rs.10 crore, all private companies with paid-up capital of Rs.20 crore or more, and all companies with public deposits of a minimum of Rs.50 crore.
The rules will apply retrospectively from the date the auditors were appointed and not from the date of notification of the rules. However the auditor (or audit firm) will usually have an extra three years as a “transition” period.
The rules also rule out rotation to a “network firm” or an associate or affiliate of the existing audit firm. Several audit firms had created such firms in anticipation of the rotation mandated by the companies legislation
The rules notified on Monday pertain to three more chapters of the new companies law that comes into force from 1 April.
The final rules say that unlisted public companies with a paid up share capital ofRs10 crore or more, private limited companies with a paid up share capital of Rs20 crore or more, and companies with public borrowings from financial institutions, banks or public deposits of Rs50 crore or more will have to comply with the auditor rotation requirement. However, some experts did not agree with the need for imposing auditor rotation on unlisted companies.
"Extending this requirement to unlisted companies is unusual. This may be troublesome for unlisted Indian subsidiaries of global multinational corporations since the rotation period and requirements in their home countries may be different from those prescribed in India resulting in challenges in audit of the consolidated financial statements," said Jamil Khatri, Global Head of Accounting Advisory Services, KPMG in India.
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