COMPANY LAW
Rotation of Auditors for Private Limited Companies
Rotation of Auditors for Private Limited Companies
Does the rotation of auditors apply to Private Companies? Or How I will know my Company complies with the provisions?
There are some testing criteria given under Companies Act, 2013 read with Companies (Audit and Auditors) Rules, 2014 to check the application of rotation of Auditors for Private Limited Company.
Appointment of Auditors
Section 139(1) of the Companies Act, 2013 deals with the mandatory requirement that applies to every Company regarding the appointment of auditor whether an individual or a firm for a period of five years after receiving consent and eligibility certificate from them.
Rotation of Auditor
Section 139(2) of the Companies Act says about the term of Auditors for appointment or reappointment for certain classes of companies which are given hereunder
- an individual as auditor for more than one term of five consecutive years; and
- an audit firm as auditor for more than two terms of five consecutive years
The proviso clause of the above section explains that if an individual auditor has completed his term of five consecutive years in the same company or an audit firm has completed his term of five consecutive years for two times in the same company, they are not eligible to re-appointment in the same company for five years from the completion of their term.
The certain classes of Companies are mentioned hereunder as give in the Companies (Audit and Auditors) Rules:
- Listed Companies;
- all unlisted public companies having paid-up share capital of rupees ten crores or more;
- all private limited companies having paid-up share capital of rupees fifty crores or more;
- 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
Here the meaning of financial institutions shall be as understood per the definition provided by the RBI. Financial institutions include non-banking financial companies.
Comment: If a private limited Company have paid-up share capital of rupees not exceeding fifty crores but have public borrowings or loans from financial institutions, banks or public deposits of rupees fifty crores or more, then it must rotate its auditor after the expiry of his term as given in Section 139(2) of the Companies Act.
Companies in which provisions relating to rotation of auditor does not apply are:
- Small Companies
- One person
- All private limited Companies whose paid-up share capital does not exceed rupees fifty crore
- All private limited Companies whose public borrowings from financial institutions, banks, or public deposits does not exceed rupees fifty crores.