But term of individual auditors may be reduced to four years.
The ministry of corporate affairs may allow companies to retain their audit firms for seven years instead of a maximum consecutive term of five years, as recommended by the parliamentary standing committee on finance in August.
However, individual auditors working on behalf of these firms may not be so lucky. The ministry is likely to cut their term from the currently proposed five years to a maximum of four years.
The changes are meant to make the draft Companies Bill 2009 more industry friendly. Industry bodies such as CII had strongly opposed the move to impose frequent rotation of auditors. The Bill is expected to be tabled in Parliament during the Budget session early next year.
| SHOWING FLEXIBILITY |
| * Proposed changes are meant to make the draft Companies Bill more industry friendly |
| * Industry bodies such as CII had strongly opposed the move to impose frequent auditor rotation |
| * New clauses may suggest varying terms for each partner of joint audit team to ensure continuity |
| * Corporate affairs ministry is yet to take a final view on the frequency of auditor rotation |
| * Ministry is also examining a proposal to introduce rotation of auditors in a phased manner |
The fresh clauses, being drafted at the behest of Corporate Affairs Minister Salman Khurshid, may also suggest varying terms for each partner of a joint audit team, thereby ensuring continuity even when one firm completes its term, sources said.
A senior official said the corporate affairs ministry is yet to take a final view on the frequency of rotation, though it has decided that rotation of auditors would be mandated. “It remains five years at the moment. We are yet to finalise it,” the official said.
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According to the draft Companies Bill, which was scrutinised by the parliamentary panel, the suggestion agreed upon by both the panel and the ministry was to restrict the length of tenure for an audit firm to five years.
The panel had agreed to the view that an individual auditor, who has completed a consecutive tenure of five years, would not be eligible for reappointment in the same company for the next three years. Similarly, an audit firm, which has completed a consecutive tenure of five years, would have a cooling-off period of five years before it can audit the same firm.
According to sources, the ministry is also examining a proposal to introduce the rotation of auditors in a phased manner. While public sector entities and stock exchange-listed companies may be included in the first phase, smaller entities could get more time, it is felt.
The rotation of auditors was incorporated into the Bill in the aftermath of the country’s largest accounting scam, allegedly perpetuated by the former promoters of Satyam Computer Services. The apex audit standards-setting body, Institute of Chartered Accountants of India, had found fault with the auditors associated with the company, as they had failed to expose the fraud.
The parliamentary panel sought compulsory rotation of auditors to strengthen auditing performance and thereby minimise the likelihood of such frauds in the future.