The Applicable Classes
Section 139(2) applies to: every listed company; every unlisted public company with paid-up share capital of ₹10 crore or more; every private company with paid-up share capital of ₹50 crore or more; and every company with paid-up capital below the threshold but with public borrowings from financial institutions, banks, or public deposits of ₹50 crore or more. One person companies and small companies are excluded.
The Tenure Caps
An individual auditor may be appointed for one term of five consecutive years. An audit firm may be appointed for two terms of five consecutive years, subject to the firm’s completion of the first term and the audit committee’s recommendation for the second term. After completing the term, the individual auditor or audit firm is subject to a five-year cooling-off period.
The Transition Rules
For companies existing on or before the commencement of the Act, the transition period is computed from the first annual general meeting held after three years from the commencement date. The auditor’s tenure before the commencement is counted for the purpose of determining the remaining term, but the transition provisions provide a window to comply. A company that has not mapped its auditor’s pre-commencement tenure is at risk of an inadvertent overrun.
The Common-Partner Disqualification
An audit firm with a common partner with a firm whose tenure has expired in the same company is disqualified for five years. The rotation analysis must therefore map the partners of the outgoing firm and the incoming firm, not merely the firm names. A rotation that appoints a “new” firm with the same engagement partner is not a valid rotation.
The Audit Committee’s Role
The audit committee should recommend the appointment or reappointment of the auditor and assess the auditor’s independence. The committee should plan the rotation at least two years before the cap is reached, identify potential incoming firms, and conduct a conflict check. A rotation executed in the final year without a shortlist is a rushed appointment that may compromise audit quality.
The Certificate and Filing
The auditor’s appointment requires the auditor’s certificate of eligibility and the board’s resolution. The company must file the appointment with the ROC in Form ADT-1. The certificate should confirm that the appointment is within the tenure limits and that the auditor is not disqualified.
Call to Action: For auditor rotation planning, eligibility certificate review, or Section 139(2) transition mapping, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.