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CS Executive · Company Law and Practice · Accounts and Auditors

Orchid Realty Ltd, a listed company, had audit firm Shah & Associates as auditor for two consecutive five-year terms, and the term has expired in the preceding financial year. Partner Mr. Shah is also a partner in another audit firm, Shah Gupta LLP. Which statement is correct under the Act?

Shah Gupta LLP cannot be appointed for five years. The Act bars an audit firm having a common partner with a firm whose tenure expired in the company in the preceding financial year, and a firm includes an LLP. The expired firm itself is also ineligible for five years.

  1. AShah Gupta LLP may be appointed immediately since it is a different firm
  2. BShah Gupta LLP may be appointed after two years
  3. CShah & Associates may be re-appointed after one year
  4. DShah Gupta LLP cannot be appointed for five years since it has a common partner with the firm whose tenure expiredCorrect

Explanation

An audit firm that completed its term cannot be re-appointed for five years. Further, a firm having a common partner with the firm whose tenure expired in the preceding financial year cannot be appointed as auditor of the same company for five years. A firm includes an LLP, so Shah Gupta LLP is covered. Being a separate legal entity does not avoid the bar.

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