In Clause 123 (1A) of Companies Bill, the ministry stipulates that no company can appoint or re-appoint an individual or a firm as auditor for more than five consecutive years. “The provisions of mandatory rotation of auditors and audit firms will stay, although 5-year period for rotation (of auditors) may be relaxed. Industry did have issues with rotating auditors and audit firms every 5 years but we are working out a more acceptable time frame,” a senior MCA official told PTI.
Although the provision for rotation of auditors was approved by the Parliamentary Standing Committee on Finance that had earlier scrutinised the Bill, it did not find favour with the industry.
The industry argued that it takes years for an auditor to understand a large company and hence change of auditors after five years is not desirable. The Parliamentary Standing committee has noted that rotation of audit partners and audit firms should be considered especially in the light of the Rs 14,000-crore accounting fraud at Satyam Computer Services, whose founder-chairman confessed of having cooked the books of the company for over seven years. The Companies Bill 2009, which will replace a half-a-century old Act, is expected to be brought before Parliament for consideration and passage in the the ongoing Budget session. If passed, the bill will protect the rights of minority shareholders, bring about responsible self-regulation with adequate disclosure and accountability, and lesser government control over internal corporate processes.
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