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Richa Mishra
K.R. Srivats

The issue of rotation of audit firms, which has come in for global debate ever since a spate of corporate failures surfaced in the US over the last few years, has an important bearing on auditor-management relationship and independence aspect to such relationships.

NEW DELHI, May 16

INDIAN audit partners and audit firms can now breathe easy, at least for some time to come. The much hyped issue of compulsory "rotation of audit firms" or "rotation of audit or engagement partners" is unlikely to form part of the amendments that are to be carried out to the Chartered Accountants Act, 1949.

The recently introduced Companies (Amendment) Bill, 2003 is also silent on this matter even as some of the recommendations of the Naresh Chandra Committee on Corporate Audit and Governance have been adopted in the Bill.

The issue of rotation of audit firms, which has come in for global debate ever since a spate of corporate failures surfaced in the US over the last few years, has an important bearing on auditor-management relationship and independence aspect to such relationships.

"Considering the implications of the issue involved, we have, as of now, put the rotation matter on hold," a senior Finance Ministry official told Business Line.

The amendments to the Chartered Accountants Act are to be taken at the ensuing session of the Parliament. The amendments are mainly intended at revamping the disciplinary mechanism laid out in the law for this profession.

The Joint Parliamentary Committee (JPC) that probed the recent stock market scam came down heavily on the Department of Company Affairs (DCA) for not taking any decision on the amendments for disciplinary matters proposed by ICAI two decades ago, except for seeking a fresh set of proposals from the institute in 1994 and again in 2001.

On rotation of auditors, the Naresh Chandra Committee report had recommended that there is no need to legislate in favour of compulsory rotation of audit forms.

However, the Committee had suggested that the partners and at least 50 per cent of the engagement team (excluding article clerks and trainees) responsible for the audit of either a listed company, or companies whose paid up capital and free reserves exceed Rs 10 crore, or companies whose turnover exceeds Rs 50 crore, should be rotated every five years.

This recommendation of the Committee, which was appointed by the Department of Company Affairs, came even as two distinct school of thoughts emerged from different stakeholders.

While the Comptroller and Auditor-General (CAG), Life Insurance Corporation (LIC) and the Associated Chambers of Commerce and Industry of India (Assocham) favoured compulsory rotation of audit firms, bodies like the Federation of Indian Chambers of Commerce and Industry (FICCI), Confederation of Indian Industry (CII) argued in favour of rotation of audit or engagement partners.

The Central Council of the Institute of Chartered Accountants of India (ICAI) is yet to take a final call on the matter.

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