Proprietary Firm (having FRN) or individual CA who is practicing either in his own name or trade name can be appointed as Auditor only for One Term: ICAI

The Institute of Chartered Accountants of India (ICAI) has clarified regarding the applicability of the provisions of Section 139 of the Companies Act 2013 read with Rule 5 and 6 of the Companies (Audit and Auditors) Rules, 2014.

The query put forth was whether a Proprietary firm (having FRN) or individual CA who is practicing either in his own name or trade name can be appointed for two terms as per Section 139 of Companies Act, 2013.

Section 139 of the Companies Act, 2013 provides that subject to the provisions of this Chapter, every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting and the manner and procedure of selection of auditors by the members of the company at such meeting shall be such as may be prescribed.

No listed company or a company belonging to two class or classes of companies as may be prescribed, shall appoint or re-appoint namely an individual as auditor for more than one term of five consecutive years and an audit firm as auditor for more than two terms of five consecutive years.

As per Rule 5 and 6 of Companies (Audit and Auditor) Rules, 2014, the Class of Companies who are required to comply with the provisions of Section 139.

Firstly, all unlisted public companies having paid up share capital of rupees ten crore or more; Secondly, all private limited companies having paid up share capital of rupees fifty crore or more.

As per Explanation I to Rule 6 of Companies (Audit and Auditor) Rules, 2014, the term “same network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control.

Thirdly, all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more. The ICAI stated that a Proprietary firm (having FRN) or individual CA who is practicing either in his own name or trade name can be appointed as auditor only for one term as per Section 139 of Companies Act, 2013.

Source: https://www.taxscan.in/proprietary-firm-individual-ca-who-practicing-either-own-name-trade-name-appointed-auditor-one-term-icai/110531/