Govt makes rotation of auditors mandatory under new companies law

 

 

New Delhi: The 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.

since the requirement applies even to suspected frauds where the investigation may not have been completed by the company within the timeline of 60 days,” said Khatri.

“he said.

Gupta said that in the case of fraud detection and reporting, guidelines from Institute of Chartered Accountants of India are requirwhere an individual auditor, or the audit firm, are due to complete the maximum term in office of five years and 10 years, respectively, (they) will have to (be) rotated out at the end of the 3-year transitional period starting from 1 April,” Yogesh Sharma, partner, assurance at Grant Thornton India LLP, said in an emailed statement.


“This implies that for situations where an individual auditor, or the audit firm, are due to complete the maximum term in office of five years and 10 years, respectively, (they) will have to (be) rotated out at the end of the 3-year transitional period starting from 1 April,” Yogesh Sharma, partner, assurance at Grant Thornton India LLP, said in an emailed statement.Analysts and experts are divided on the impact of the clause to make rotation mandatory. While some see the new rules ushering in a significant consolidation in the profession of auditing, others think it could spell trouble, at least for some firms.While auditor rotation is gaining momentum in the EU (European Union) and many other parts of the world, extending the requirement to unlisted companies is unusual,” Jamil Khatri, global head of accounting advisory services, KPMG in India, said in an emailed statement. “This may be particularly troublesome for unlisted Indian subsidiaries of global multinational companies 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

J.N. Gupta, a former executive director with Securities and Exchange Board of India said that auditor rotation will “stop the monopoly of the ‘big four’”—a reference to global audit firms Deloitte Touche Tohmatsu Ltd, PricewaterhouseCoopers, EY (formerly Ernst & Young) and KPMG.

Gupta further said that the new stipulations will “make the audit process more serious”.

Gupta said that while the rules were still being finalized, several top audit firms had set up several new companies to circumvent the new stipulations. “But the rules that have finally been notified do not allow for this,” he said.

The new rules also require auditors to get a response from a company’s board or the audit committee before reporting a fraud to the Union government. The fraud has to be reported within 60 days.
ISHWAR SINGHAL
PGDM IST