CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Governance Influencers
Kaveri Pharma Ltd's statutory auditor has served the company for one term of five years. The board wants to retain the same audit firm for a second consecutive term to preserve continuity. Which statement best reflects the gatekeeper-independence logic of the Companies Act, 2013 on this?
An audit firm may be appointed for a second consecutive five-year term but not a third. The rotation rule limits familiarity between management and the auditor and thereby protects auditor independence as a governance gatekeeper.
- AA firm can be reappointed for a second consecutive term of five years, but not for a third consecutive termCorrect
- BA firm can be reappointed indefinitely if the shareholders approve each year
- CA firm can never be reappointed once its first term ends
- DA firm can be reappointed only if the audit committee chair is a former partner of the firm
Explanation
Under the Companies Act, 2013 an audit firm may be appointed for up to two consecutive terms of five years each. After that a cooling-off period applies, which supports auditor independence. The indefinite reappointment option ignores this rotation rule.
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