Clarification on the transitional time gap in the requirements relating to the engagement partner’s rotation under SQC 1 and the auditor’s rotation under the Companies Act, 2013
1. The Council of the Institute of Chartered Accountants of India (ICAI), at its 359th meeting held on September 16-17, 2016 considered an issue regarding a transitional time gap in the requirements relating to the engagement partner’s rotation under the SQC 1, “Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements” issued by ICAI, and the provisions related to rotation of audit firms under the Companies Act, 2013. At the meeting, the Council noted the following points:
- In case of audit of listed entities, Paragraph 27 of SQC 1 requires rotation of engagement partner after a pre-defined period normally not more than seven years (emphasis added).
Since SQC 1 is applicable from April 1, 2009, the provisions regarding the rotation of engagement partner, as per SQC 1, would be applicable from April 1, 2016.
- The Companies Act, 2013 is applicable from April 1, 2014 and the companies which are existing on or before the commencement of the Companies Act, 2013, have been given relaxation of 3 years to comply with requirement of auditor’s rotation, the provisions regarding auditor’s rotation would be effective from April 1, 2017. Further, the Companies (Removal of Difficulties) Third Order, 2016 issued on 30th June 2016 has extended the time for compliance till the date of the first annual general meeting of the company held after 31st March 2017.
- In view of the above, the provisions of engagement partner’s rotation would need to be complied with immediately, followed by the audit firm’s rotation soon thereafter.
2. On consideration of the above, for the aforesaid transitional time gap the Council decided to issue a clarification on the said matter and provide relaxation in the requirement of the rotation of engagement partner as given in paragraph 27 of SQC 1 to be aligned with the rotation of the audit firm in respect of those audit firms which would be rotated by companies in their first annual general meeting held after 31st March 2017. Thereby for those companies where the rotation of engagement partner as per SQC 1 is applicable from April 1, 2016, it will now be applicable from the date of the first annual general meeting of the company held after 31st March 2017.