Government issues new rules for auditors

NEW DELHI: The government on Monday issued the rules governing the audit and auditors, which also contain details of mandatory rotation of auditors.

These rules will be operational from April 1, 2014. The corporate affairs ministry has so far rolled out rules for 11 chapters of the new companies law. In the final rules the ministry has specified the threshold for identifying the class of companies that have to implement mandatory rotation.

“A significant change from the draft rules is that final rules define a more practical threshold for identifying the class of companies,” said Yogesh Sharma, partner, Assurance at Grant Thornton India LLP.

The final rules say that unlisted public companies with a paid up share capital ofRs10 crore or more, private limited companies with a paid up share capital of Rs20 crore or more, and companies with public borrowings from financial institutions, banks or public deposits of Rs50 crore or more will have to comply with the auditor rotation requirement. However, some experts did not agree with the need for imposing auditor rotation on unlisted companies.

“Extending this requirement to unlisted companies is unusual. This may be troublesome for unlisted Indian subsidiaries of global multinational corporations 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,” said Jamil Khatri, Global Head of Accounting Advisory Services, KPMG in India.