In a major move towards increasing the level of corporate governance and transparency in India, firms will be mandated to rotate their auditors after every four year under the new Companies Bill.
At present, private firms are not required to rotate auditors. The system is followed only by government enterprises including state-owned banks.
The Institute of Chartered Accountants of India (ICAI) has been in favour of implementing the system especially in the wake of the corporate fraud at the erstwhile Satyam Computer Services.
"Rotation of auditors is critical to increasing transparency," corporate affairs minister M Veerappa Moily told HT.
Mandatory rotation of auditors would infuse a great degree of accountability for the auditors. Besides, it is also expected to act as deterrent for promoters from building an unholy nexus with auditors who are meant to independently verify a firm's accounts.
{{/usCountry}}Mandatory rotation of auditors would infuse a great degree of accountability for the auditors. Besides, it is also expected to act as deterrent for promoters from building an unholy nexus with auditors who are meant to independently verify a firm's accounts.
{{/usCountry}}The new Companies Bill has been sent to the Cabinet for its approval a fortnight ago, said Moily. "We are expecting it to be cleared anytime now. We are all set to present it in Parliament during the winter session."
"Rotation of auditors will help bring in more transparency and accountability," an analyst said.
"The system of rotation of auditors is practised by public sector banks and it has brought in a high level of accountability."
The role of auditors came under the scanner after the fraud at the erstwhile Satyam Computers' stunned Indian companies and critical loopholes pertaining to accounting standards in the country came to light after B Ramalinga Raju, co-founder and former chairman of Satyam, admitted to having doctored the books of the company for years.