Rotation of auditor applicability - public unlisted company

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ramanamma (Querist)
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18 July 2016 Hi Friends
Is it rotation of auditor applicable for all the companies or any restriction is there.
If auditor continues from the date of incorporation from past more than 10 years then the remaining period of continuance of service how we can determine.
Please suggest.

CMA MALHAR BEHERA

CMA MALHAR BEHERA (Expert)
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18 July 2016 Section 139(2) of the Companies Act, 2013 (the Act) has mandated all listed companies and certain categories of unlisted public companies and private companies to mandatorily rotate their auditors (whether such auditor is an individual or a firm) once their auditor has served office as an auditor for a period of 10 or more consecutive years (Rotation Period). In this regard, the third Proviso to Section 139(2) of the Act has provided a moratorium period, wherein companies incorporated prior to 1 April 2014, have been provided a time period of 3 years from such date to comply with the requirement to rotate their auditors.
Therefore, beginning 1 April 2017, all companies who are required to rotate their auditors under the Act, will have to rotate their existing auditors (Current Firm), if the Current Firm has held office as such company's auditor for a period of 10 years or more.

Requirements under the Act:

Section 139(2) of the Act prohibits the following categories of companies from appointing / reappointing an audit firm for more than 2 terms of 5 consecutive years, i.e. 10 consecutive years, after which such company would be required to mandatorily rotate its auditors in accordance with the Act:
(i) listed companies;
(ii) unlisted public companies having a paid-up share capital of INR 10 crores or more;
(iii) all private limited companies having a paid-up share capital of INR 20 crores or more; and
(iv) all companies (private and public) which do not meet the thresholds mentioned in (ii) and (iii) above, but have public borrowings from banks / financial institutions or public deposits of more than INR 50 crores.

Therefore, Section 139 of the Act only appears to apply prospectively and does not appear to require the time period served by an individual audit firm or multiple audit firm prior to 1 April 2014 to be considered when calculating the Rotation Period.

However, Rule 6(3)(i) of the Companies (Audit and Auditors) Rules, 2014 (the Rules) states that, in case of "an auditor" (whether an individual or audit firm), the period for which "an audit firm" has held office as auditor of a company prior to the commencement of the Act should be considered when calculating the Rotation Period and determining the requirement to rotate auditors under the Act. Therefore, by virtue of Rule 6(3)(i) of the Rules (which deals with events which occurred prior to 1 April 2014), it appears that only the time served an individual audit firm is to be considered when calculating the Rotation Period.