If the new Companies Bill becomes law, 10 of the 30 Sensex companies will have to look for new auditors.
The Bill, a comprehensive revision of the 55-year-old law, has proposed periodic rotation of auditors and audit agencies.
An individual auditor in the case of listed companies shall not be appointed for more than five continuous years and cannot be reappointed in the same company for another five years after completion of the term.
If the auditor was a company, it shall not be appointed for more than 10 years (two terms of five years each) and cannot be reappointed in the same company for another five years after completion of the term.
Also, the company may now resolve that in the case of an audit firm, the auditing partner and his team shall be rotated every year or the audit shall be conducted by more than one auditor. A three-year transition period has been given.
New auditors for 30 firms
Ten out of the 30 present Sensex companies, including Reliance Industries, Hindustan Unilever and Hero MotoCorp, have had the same auditors for 10 years or more, data compiled by the Business Standard Research Bureau showed.
And, 23 of the 30 Sensex companies have had the same auditors for more than five years. In smaller companies, the relationship is stronger and, in many cases, longer.
"The spirit of rotation of audit firms is to ensure that auditors function at arms-length distance from the company owners and management, and safeguard the interest of investors at large. It is not onerous on the system to ensure rotation; there are enough qualified audit firms and audit partners," said Shriram Subramanian, founder and managing director, InGovern Research Services, a Bangalore-based proxy advisory and corporate governance research company.
He feels group companies should not interchange auditors.
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