FSIA E-circular dt.22ndFebruary 2013
( Compulsory Rotation of Auditors)
Faridabad Small Industries Association
The face of Modern Indian MSMEs
FSIA Park , Opp. Plot No.23, Sector-24, Faridabad- 121005, Haryana , India
Integrated Association of Micro, Small & Medium Enterprises of India
E-mail: , +91-9711123111 (Executive Secretary);
Rajive Chawla
President, FSIA / /
Sangeet Kr Gupta
Hon. Consultant, FSIA
Dear FSIA Members,
Another New Feature of Companies Bill 2012
(* as passed by Lok Sabha ), Expected to be passed by Rajya Sabha soon )
Just like in the last issue, We at I-M-SME-of-India, are bringing to you the “new innovative” features to our members in the Companies Bill 2012, via these circulars. Today we bring to you the topic of “Compulsory Rotation of Auditors”.
Now a company cannot continue with
same Auditor for too long
Source:
What law says :
Section 139. (1) ………..every company shall, at the firstannual general meeting, appoint an individual or a firm as an auditorwho shall hold officefrom the conclusion of that meeting till the conclusion of its sixth annual general meeting andthereafter till the conclusion of every sixth meeting ……….”
So, For the First time ever, since 1956, you have a compulsory “Time Limit” for Appointment of Auditors.
The Directors are usually on “Family-Terms” with their Auditors. On one hand, this is a “good thing”. He/she is your friend, philosopher and guide. He is with you in your ups and downs. And you can have faith on him/her for all your major financial decisions.
So far, so good, But sometimes for large companies this becomes a glass wall. And sometimes for whatever reasons, people at large begin to suspect this relationship. They start questioning the “independence”.
Till recent past, the process for removal of auditors was statutorily prescribed. And auditors term were expected to be renewed in every next AGM. Now this is coming for a change.
So, the appointment would be for a maximum of 5 years.
Law further binds that Same Auditor will not be “Re-appointed” after 5 years / 10 years
Law says
(2) No listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint— (a) an individual as auditor for more than one term of five consecutive years; and (b) an audit firm as auditor for more than two terms of five consecutive years:
Provided that—
(i) an individual auditor who has completed his term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years rom the completion of his term;
(ii) an audit firm which has completed its term under clause (b), shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term:
So, again this is the cross check that same auditor is not appointed again.
Can the CA form a new firm with some “common partner” , and then, be re-appointed ?
No, law has banned that too. So, even this loophole is not possible
Does this apply to proprietorships / Partnerships ?
No.
This change is legal change in Companies Bill only.
Does this apply to all Private Limited companies too ?
No.
This change shall be compulsory in phases.
Initially only for the listed companies
Then, for some other “class of companies” that the Government may prescribe.
Small companies, might be touched after many years.
Does this come info effect immediately for the affected companies ?
No.
This change is legal change in Companies Bill only. The bill is yet to be passed by Rajya Sabha and yet to be signed by the President of India. It will become an Act after that date only.
Will I have time to do this ? or it has to happen immediately ?
Don’t worry, you will still have time of 3 years.
Law says : “ Provided also that every company, existing on or before the commencement of this Actwhich is required to comply with provisions of this sub-section, shall comply with the requirements of this sub-section within three years from the date of commencement of this Act:
What Should the I-am-SME-of-India member do ? Appreciate it ?
Yes.
It is a good idea.
This is more “corporate”.
Come corporatize yourself.
Grow your business.
The laws are changing to make your life easier.
Things are getting competitive for all, and let us all grow our services portfolio with even better service.
Some Tips and Reminders
Be there
At Hotel Delite : 28.2.2013 : 10 am onwards
What does the Union Budget 2013 have in store for you ?
Will the GST be announced now ?
Will the Excise Rates be increased from 12% to 14% this year ?
Will the Inheritance Tax be introduced again after 20 years ?
For queries, suggestions and feedback , you can e-mail us
Sangeet Kumar Gupta, FCA, DISA,ACMA, PGDMM, B.Com(Hons), Honorary Consultant,Faridabad Small Industries Association
93126-08426, Camp Off : H No 63, Sector-15, Faridabad. FSIA Off : FSIA Park, Opp. Plot No.23, Sector- 24,Faridabad- 121005.
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Notes & disclaimer
The contents of this circular are for Private circulation & intended for the addressee/s only. We do not warrant that this email is free of mistakes, errors or any other defect. Care has been taken to provide authentic information, but it is advisable to confirm/verify with qualified legal practitioners, professionals before implementing any suggestions. The views expressed are not necessarily those of the Association. We encourage readers, FSIA Members to write to us their opinions, suggestions, ideas, comments, thoughts and bring to our knowledge mistakes, omissions etc. which we’d be pleased to correct/implement.
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