Corporate Laws (Amendment) Bill, 2026: New 3-Year Cooling-Off Rule for Auditors Sparks Industry Concern:

Corporate Laws (Amendment) Bill, 2026: New 3-Year Cooling-Off Rule for Auditors Sparks Industry Concern The government has introduced a significant amendment in the Corporate Laws (Amendment) Bill, 2026, under which auditors and audit firms are restricted from delivering non-audit services after their term completes. The Bill suggests that once an auditor or audit firm completes its tenure as a statutory auditor, it is not allowed to provide any non-audit services to that company or its subsidiaries for the next three years. These non-audit services include providing tax advisory, internal audits, consulting, and other advisory roles. This new provision under the said Bill is anticipated to be added through an amendment to Section 144 of the Companies Act. Presently, auditors in India face a rotation requirement under Section 139(2) of the Companies Act, where statutory auditors are required to be changed after every five years and audit firms after every ten years. However, the new proposed provision adds a “cooling-off” restriction on additional services even after the audit relationship ends.

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According to the experienced auditors, this provision can significantly increase the compliance cost for companies by 20 to 30%. A senior official from a Big Four firm said, "Firms will have to charge higher audit fees to compensate for the potential loss of earnings by not providing non-audit services. Large firms often rely on future advisory revenue from the same client." Firms are often seen as depending on future consulting and advisory work from audit clients, and removing this opportunity may force them to raise audit fees. Concern has also been raised that companies may lose access to experienced advisors and instead rely on smaller firms for convoluted services. Concerns have also been raised by Industry bodies like ASSOCHAM suggested that the proposed provision can decrease choice for companies, increase costs, and lead to market concentration. It was further observed that integrated audit and advisory services facilitate auditors' understanding of a company's risk and enhance audit quality in a better way.

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In a similar way, FICCI claimed that this restriction can significantly hurt large companies that require global expertise and specialised skills, which smaller firms may not always be able to provide. Hence, it has urged the MCA to remove this new provision. The FICCI stated, "With top-tier firms excluded for long periods, businesses would be forced to rely on smaller firms, which can compromise service quality in complex areas requiring global reach and deep technical knowledge. Smaller firms may not always possess the capacity, reach or specialised skill sets necessary to service such organisations, especially in areas involving complex regulatory, cross-border or sector-specific requirements." Presently, the Bill has been sent to the joint parliamentary committee (JPC) for detailed examination and final decision by the Ministry of Corporate Affairs (MCA).