Putting in place stringent regulations for corporate governance, the new Companies Bill also prescribes stringent regulations for auditing firm and its partners. As per the amended legislation, if partners of an audit firm is found involved in a fraud or has abetted or colluded in any fraud, then they will be penalized under the law. The earlier legislation lacked such penalty for auditing partners in specific.
The idea is to make auditors accountable for their job and promote good accounting practices, experts say.
“The investors often make investments based on remarks of the auditor. The auditor must therefore be responsible if investors lose any money because of auditors recommendations,” said Pavan Kumar Vijay, Managing director, Corporate Professionals
The amended Bill also mandates every company to appoint an individual or a firm as an auditor at its first annual general meeting (AGM). The auditor shall hold office from the conclusion of that meeting till the conclusion of its sixth AGM and thereafter till the conclusion of every sixth meeting. The appointment of the auditor is to be ratified at every AGM.
As per the changes, individual auditors are now required to be rotated every five years and audit firm every 10 years in listed companies and certain other classes of companies, as may be prescribed.
Earlier, there were no such clauses and in case of irregularities, only disciplinary actions were taken against auditors and auditing firm by Institute of Chartered Accountants of India, Vijay said.