Since the last ten years, Satya Ltd. has been misreporting its financial accounting accounts, which have been duly audited by the Practicing Chartered Accountants (PCA) Partnership business. Satya had no choice but to de

An important issue highlighted by the case is rotation of auditors. If the auditors have been changed after 4-5 years, they would have different opinion on the financial statements. Since same auditors were continuing for a long time, the company was able to mis-report financial statement for more than 10 yrs. A mandatory audit rotation rule which sets a limit on the maximum number of years an audit firm can audit a given company's financial statements is a means to preserve auditor independence and possibly to increase investors' confidence in financial reports. Mandatory audit firm rotation is defined in the Sarbanes-Oxley (SOX) Act as the imposition of a limit on the period of years during which an accounting firm may be the auditor of record. Mandatory audit firm rotation is often discussed as a potential way to improve audit quality - typically gaining attention when public confidence in the audit function has been eroded by events such as corporate scandals or audit failures. When the same auditors continue in the same company for years and years, it results in a close relationship between management and auditors which increases the chances of fraud. Section 139(2) read with Rule 5 of the Companies (Audit and Auditors) Rules, 2014 provides that no listed company or a company belonging to the following classes of companies excluding one person companies and small companies:- all unlisted public companies having paid up share capital of rupees ₹10 crore or more; all private limited companies having paid up share capital of rupees ₹20 crore or more; all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees ₹50 crore or more shall appoint or re-appoint - an individual as auditor for more than one term of five consecutive years; and an audit firm as auditor for more than two terms of five consecutive years. Also, an individual auditor who has completed his term of five consecutive years shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term. An audit firm which has completed two terms of five consecutive years shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term. 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. Therefore, the provision of auditor rotation as stated above can be used to circumvent situations given in the question.