# Rotation of Auditors and Cooling Period

Section 139(2) mandates rotation of auditors for certain classes of companies to ensure independence and rotation of perspective.

## Applicability of Rotation

The rotation provisions apply to:

1. Listed companies

2. Unlisted Public Companies with paid-up share capital ≥ ₹10 crore

3. Private Companies with paid-up share capital ≥ ₹50 crore

4. All companies (other than OPC and small companies) having public borrowings from financial institutions, banks or public deposits of ≥ ₹50 crore

## Maximum Term Limits

Type of Auditor	Maximum Consecutive Term
Individual Auditor	1 term of 5 consecutive years
Audit Firm	2 terms of 5 consecutive years each (i.e., 10 years)

After completing the maximum term, the auditor/firm must not be re-appointed.

## Cooling Period

Such auditor or firm shall not be eligible for re-appointment as auditor in the same company for a period of 5 years from completion of their term.
This is known as the "cooling-off period."

## Key Points to Remember

The 5/10-year limit refers to consecutive years; non-consecutive terms do not count.
Small companies and OPC are exempt from rotation requirements.
The cooling period applies to the same company, not to all companies.
For computation, the period before commencement of the Act is also to be reckoned (transitional provisions).

Worked example

### Example 1

Example 1: ABC Ltd. (a listed company) appointed Mr. P, an individual auditor, in 2019. For how long can he be appointed and when can he be re-appointed in the same company?

Solution: As an individual auditor, Mr. P can hold office for a maximum of 5 consecutive years (i.e., till 2024). After this, he cannot be re-appointed in ABC Ltd. for 5 years (cooling period), i.e., he becomes eligible again only in 2029.

### Example 2

Example 2: M/s XYZ & Associates, an audit firm, has been auditing PQR Ltd. (paid-up capital ₹15 crore) for 10 consecutive years. Can they be re-appointed?

Solution: No. Since PQR Ltd. is an unlisted public company with paid-up capital ≥ ₹10 crore, the rotation rule applies. An audit firm can be appointed for a maximum of 2 terms of 5 years (i.e., 10 years). After this, the firm must observe a 5-year cooling period before being re-appointed in PQR Ltd.

⚠️ Common exam mistakes

Applying rotation rules to all private companies — they apply only if paid-up capital ≥ ₹50 crore or public borrowings ≥ ₹50 crore.
Treating individual auditor's term and firm's term as same (5 years for individual vs 10 years for firm).
Forgetting the cooling period applies only to the SAME company — the auditor can audit other companies during cooling.
Not checking whether borrowings/deposits threshold triggers applicability for non-listed companies.
Counting non-consecutive terms — only CONSECUTIVE terms attract the limit.

Bare-Act text Section 139(2) · Companies Act, 2013 read with Rule 5 of Companies (Audit and Auditors) Rules, 2014 · click to expand

Section 139(2): No listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint — (a) an individual as auditor for more than one term of five consecutive years; and (b) an audit firm as auditor for more than two terms of five consecutive years: Provided that — (i) an individual auditor who has completed his term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term; (ii) an audit firm which has completed its term under clause (b), shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term.

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Rotation of Auditors and Cooling Period - Section 139(2)

Worked example

⚠️ Common exam mistakes