Income tax Audit firms of listed companies may have to rotate partners
The SEBI Committee on Disclosures and Accounting Standards (SCODA) has recommended mandatory rotation — every five years — of the partners of the audit firms signing the accounts of a listed company.
This is to ensure that the statutory auditors are independent from management, and also to break any continued long-term association of an audit partner with the management, said a discussion paper by SEBI summarising SCODA's observations. The rotation of audit firms themselves was ruled out as being not "practically possible." SCODA also recommended that shareholders' approval be obtained for appointment of the accounting firm a company wishes to appoint. But, finally, the onus would be on the company's Audit Committee to ensure independence of the audit firm in executing its task, the discussion paper said.
While not recommending any specific qualification for the CEO or CFO of a company, SCODA was of the opinion that the audit committee is responsible for ensuring that the CFO has the necessary accounting or related financial management expertise. SCODA, however, felt it would not be prudent to mandate that the internal audit function be carried out by an external audit firm, which SEBI had proposed.
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