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CA Intermediate · Corporate and Other Laws · Audit and Auditors

Kaveri Pharma Ltd is a listed company. Its audit firm, M/s Rao & Co., a firm of chartered accountants, has been its auditor for five consecutive years ending at the conclusion of the AGM held this year. Which statement correctly states the legal position on re-appointment?

A firm that has completed only one five-year term may be re-appointed for a second five-year term immediately, since the limit is two terms for firms. A cooling-off period of five years applies only after two terms are completed.

  1. AThe firm may be re-appointed for another term of five years only after a cooling-off period of five years from the end of the termCorrect
  2. BThe firm may be re-appointed for another term of five years after a one-year gap
  3. CThe firm can be re-appointed immediately for a further term of ten years if members pass a special resolution
  4. DThe firm can continue indefinitely if the audit committee recommends it each year

Explanation

For listed companies, an audit firm cannot be appointed for more than two terms of five consecutive years. Having completed one term, the firm is eligible for a second term, but not after two terms without a cooling-off period of five years. The option of re-appointment after a one-year gap is wrong. Indeed, the question concerns a firm that has finished one term, so it may be re-appointed immediately for a second term. The first option is therefore worded for after completion of two terms and is not correct here.

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