Rule 6 - Manner of rotation of auditors by the companies on expiry of their term. - Companies (Audit and Auditors) Rules, 2014.

6. Manner of rotation of auditors by the companies on expiry of their term.- (1) The Audit Committee shall recommend to the Board, the name of an individual auditor or of an audit firm who may replace the incumbent auditor on expiry of the term of such incumbent. (2) Where a company is required to constitute an Audit Committee, the Board shall consider the recommendation of such committee, and in other cases, the Board shall itself consider the matter of rotation of auditors and make its recommendation for appointment of the next auditor by the members in annual general meeting. (3) For the purpose of the rotation of auditors- (i) in case of an auditor (whether an individual or audit firm), the period for which the individual or the firm has held office as auditor prior to the commencement of the Act shall be taken into account for calculating the period of five consecutive years or ten consecutive years, as the case may be; (ii) the incoming auditor or audit firm shall not be eligible if such auditor or audit firm is associated with the outgoing auditor or audit firm under the same network of audit firms. Explanation. I - For the purposes of these rules the term same network includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control. Explanation. II - For the purpose of rotation of auditors,- (a) a break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation; (b) if a partner, who is in charge of an audit firm and also certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years. Illustration explaining rotation in case of individual auditor Illustration 1:- Number of consecutive years for which an individual auditor has been functioning as auditor in the same company [in the first AGM held after the commencement of provisions of section 139(2)] Maximum number of consecutive years for which he may be appointed in the same company (including transitional period) Aggregate period which the auditor would complete in the same company in view of column I and II I II III 5 years (or more than 5 years) 3 years 8 years or more 4 years 3 years 7 years 3 years 3 years 6 years 2 years 3 years 5 years 1 year 4 years 5 years Note: 1. Individual auditor shall include other individuals or firms whose name or trade mark or brand is used by such individual, if any. 2. Consecutive years shall mean all the preceding financial years for which the individual auditor has been the auditor until there has been a break by five years or more. Illustration explaining rotation in case of audit firm Illustration 2:- Number of consecutive years for which an audit firm has been functioning as auditor in the same company [in the first AGM held after the commencement of provisions of section 139(2)] Maximum number of consecutive years for which the firm may be appointed in the same company (including transitional period) Aggregate period which the firm would complete in the same company in view of column I and II I II III 10 years (or more than 10 years) 3 years 13 years or more 9 years 3 years 12 years 8 years 3 years 11 years 7 years 3 years 10 years 6 years 4 years 10 years 5 years 5 years 10 years 4 years 6 years 10 years 3 years 7 years 10 years 2 years 8 years 10 years 1 year 9 years 10 years Note:1. Audit Firm shall include other firms whose name or trade mark or brand is used by the firm or any of its partners. 2. Consecutive years shall mean all the preceding financial years for which the firm has been the auditor until there has been a break by five years or more. (4) Where a company has appointed two or more individuals or firms or a combination thereof as joint auditors, the company may follow the rotation of auditors in such a manner that both or all of the joint auditors, as the case may be, do not complete their term in the same year.