# Restrictions on Incoming Auditor (Section 139(2) Provisos)
To ensure genuine rotation and prevent circumvention through related firms or partners, the Act imposes restrictions on who can be appointed as the incoming auditor.
## Restriction 1: Common Partners
No audit firm having a common partner with the outgoing audit firm can be appointed as auditor for 5 years from the date the outgoing firm ceases to be auditor.
## Restriction 2: Same Network
The incoming auditor shall not be eligible if associated with the outgoing auditor or audit firm under the same network of audit firms. "Same network" includes firms operating or functioning under:
The same brand name
The same trade name, or
Common control
## Restriction 3: Partner Moving to Another Firm
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 — the new firm shall also be ineligible to be appointed as auditor of the same company for a period of 5 years.
## Purpose
These restrictions plug loopholes that could otherwise allow the same individuals or networks to continue auditing the company despite formal rotation.
Worked example
### Example 1
Example 1: M/s A & Co. is the outgoing auditor of XYZ Ltd. after completing 10 years. M/s B & Co., which shares a common partner Mr. Z with M/s A & Co., is proposed as the new auditor. Is M/s B & Co. eligible?
Solution: No. M/s B & Co. has a common partner with the outgoing firm M/s A & Co. and hence cannot be appointed as auditor of XYZ Ltd. for a period of 5 years from the date M/s A & Co. ceases to be auditor.
### Example 2
Example 2: M/s P & Co. and M/s Q & Co. both operate under the same brand name "Global Audit Network." M/s P & Co. is the outgoing auditor. Can M/s Q & Co. be appointed as the new auditor?
Solution: No. M/s Q & Co. operates under the same network (brand name) as the outgoing auditor and is therefore ineligible to be appointed as auditor for 5 years.
### Example 3
Example 3: Mr. R was the partner-in-charge at M/s X & Co. who signed the audit report of ABC Ltd. After retiring from M/s X & Co., he joins M/s Y & Co. Can M/s Y & Co. be appointed as auditor of ABC Ltd.?
Solution: No. Since Mr. R was in charge of the audit firm and certified the financial statements, his new firm M/s Y & Co. is ineligible to be appointed as auditor of ABC Ltd. for 5 years.
⚠️ Common exam mistakes
Believing only the outgoing firm itself is barred — actually, common-partner firms, network firms, and firms where the certifying partner moves are ALL barred.
Confusing 'common partner' with 'same network' — these are distinct restrictions.
Forgetting that 'same network' includes brand name, trade name, AND common control.
Applying the partner-movement restriction to any partner — it applies only to the partner-in-charge who certified the FS.
Bare-Act text Section 139(2) and Rule 6(3) · Companies Act, 2013 read with Rule 6 of Companies (Audit and Auditors) Rules, 2014 · click to expand
Section 139(2) provisos (continued): Provided further that as on the date of appointment no audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same company for a period of five years.
Rule 6(3) of Companies (Audit and Auditors) Rules, 2014: 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: For the purposes of these rules the expression 'same network' includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control.