Corporate and Other Laws · Audit and Auditors

Non-Audit Services, Auditor's Liability and Penalties

Updated 4 October 2026 · Fact-checked

Section 144 bars an auditor from rendering listed non-audit services to the company, its holding company or subsidiary. Section 146 gives the auditor the right to attend and be heard at general meetings. Section 147 fixes fines, imprisonment and liability for contravention. Answer by stating the provision, applying it to the facts, then concluding.

Understand Non-Audit Services, Auditor's Liability and Penalties

An auditor must be independent. If the auditor also does management-type work for the company, the auditor ends up checking their own work. Section 144 prevents this. It lets the auditor provide only such other services as are approved by the Board of Directors or the audit committee, as the case may be, and it bans a list of services.

The banned services are: (a) accounting and book keeping; (b) internal audit; (c) design and implementation of any financial information system; (d) actuarial services; (e) investment advisory services; (f) investment banking services; (g) rendering of outsourced financial services; (h) management services; and (i) any other kind of services as may be prescribed. The ban applies whether the service is given directly or indirectly. It covers services to the company, its holding company or its subsidiary company.

Directly or indirectly is widened by an Explanation. For an individual auditor it includes services through a relative, any person connected or associated with the auditor, or any entity in which the auditor has significant influence or control or whose name, trade mark or brand the auditor uses. For a firm it includes services through any partner, or through its parent, subsidiary or associate entity, or any other entity in which the firm or any partner has significant influence or control or whose name, trade mark or brand is used by the firm or any partner. A person who did non-audit services before the Act commenced had to comply before the closure of the first financial year after commencement.

Section 146 deals with the auditor's voice. All notices and communications of any general meeting must be sent to the auditor. Unless the company exempts the auditor, the auditor must attend the meeting, either personally or through an authorised representative who is also qualified to be an auditor. The auditor has the right to be heard on any part of the business that concerns him as auditor.

Section 147 is the penalty section. It punishes the company and its officers for contravening sections 139 to 146, and it punishes the auditor separately for contravening section 139, 143, 144 or 145. If the auditor acts knowingly or willfully to deceive, the punishment is heavier, and the auditor must refund remuneration and pay damages. Partners of an audit firm face joint and several liability with the firm for fraud.

Key rules to remember

Section 144: prohibited services: Accounting and book keeping | internal audit | design and implementation of financial information system | actuarial | investment advisory | investment banking | outsourced financial services | management services | any other prescribed service; Nine heads in total, (a) to (i). Other services are allowed only if approved by the Board or audit committee, as the case may be.
Reach of Section 144: Ban applies to services to the company, its holding company or its subsidiary company, directly or indirectly; Indirect includes services through relatives, partners, parent, subsidiary or associate entities, or entities the auditor controls or influences or whose name or brand is used.
Section 146: general meetings: Notices go to the auditor | auditor attends personally or through an authorised representative qualified to be an auditor | right to be heard on business concerning him as auditor; Attendance is not required if the company exempts the auditor.
Section 147(1): company and officers in default: Company: fine ₹25,000 to ₹5,00,000 | Officer in default: fine ₹10,000 to ₹1,00,000; Applies to contravention of any of sections 139 to 146. No imprisonment now applies to the officer under this sub-section.
Section 147(2): auditor, ordinary contravention: Fine of ₹25,000 to ₹5,00,000 or four times the remuneration of the auditor, whichever is less; Applies to contravention of section 139, 143, 144 or 145.
Section 147(2) proviso: knowing or willful contravention: Imprisonment up to 1 year and fine of ₹50,000 to ₹25,00,000 or eight times the remuneration, whichever is less; Requires intention to deceive the company, its shareholders, creditors or tax authorities.
Section 147(3): consequences of conviction: Refund remuneration to the company + pay damages for loss from incorrect or misleading statements in the audit report; Damages are payable to the company, statutory bodies or authorities, or members or creditors of the company.
Section 147(5): audit firm: Partner acted fraudulently or abetted or colluded in fraud: liability of the partner and the firm jointly and severally; For criminal liability other than fine, only the concerned partner or partners are liable.

How to solve Non-Audit Services, Auditor's Liability and Penalties questions

Most questions give a short fact pattern and ask whether an act is allowed or what the consequence is. Use the same frame every time.

1Identify the issue: is it a prohibited service, a meeting right, or a penalty or liability question?
2For a service question, note who receives it: the company, its holding company or its subsidiary company. Then match the service to the nine heads in Section 144.
3Check whether the service is given directly or indirectly, for example through a relative, a partner, an associate entity or a firm using the auditor's brand.
4If the service is not on the banned list, check whether the Board or the audit committee, as the case may be, has approved it.
5For a penalty question, find who contravened: the company and officers (Section 147(1)) or the auditor (Section 147(2)). Check the section breached is one covered.
6Test for knowledge or willfulness and intention to deceive. If present, apply the proviso with imprisonment and higher fine. If absent, apply the ordinary fine.
7Add the consequences under Section 147(3) on conviction and Section 147(5) if the auditor is a firm and fraud by partners is involved.
8Write the conclusion in one clear line using the facts of the question.

Quickest way: Provision, Facts, Conclusion in four lines

When to use it: Use this for both MCQs and the 70-mark descriptive part when a question names a service or a contravention.

MCQ: scan the service against the nine heads. Accounting, internal audit, actuarial, investment advisory, investment banking, outsourced financial services, management services, financial information system design are out. Eliminate options naming them.
MCQ on amounts: remember 25,000 to 5 lakh for the company and the ordinary auditor fine, 10,000 to 1 lakh for officers, and 50,000 to 25 lakh for the willful case. Match the option to the right person.
Written: line 1, state the section and rule in plain words. Line 2, list the relevant facts. Line 3, apply the rule to the facts. Line 4, state the conclusion with the penalty if any.
Always mention the holding and subsidiary company when the service goes to a group entity. Mention the Explanation when an indirect route is used.
Do not write section numbers you are unsure of. Sections 144, 146 and 147 are safe.

Common mistakes in Non-Audit Services, Auditor's Liability and Penalties

Thinking only services to the audited company are banned.
Students read the heading and forget the extended words in the section.
Fix: Remember that services to its holding company or subsidiary company are also covered, directly or indirectly.
Saying all non-audit services are prohibited.
The section is called 'Auditor not to render certain services' but students overgeneralise.
Fix: Only the listed services and any prescribed services are banned. Other services are allowed if approved by the Board or the audit committee, as the case may be.
Mixing up the fines for the company, the officer and the auditor.
Three similar ranges appear in one section.
Fix: Learn them as a set: company ₹25,000 to ₹5,00,000; officer ₹10,000 to ₹1,00,000; auditor ₹25,000 to ₹5,00,000 or four times remuneration, whichever is less.
Applying imprisonment for every auditor contravention.
Students recall the proviso but skip its condition.
Fix: Imprisonment of up to one year applies only when the auditor acted knowingly or willfully with intention to deceive the company, shareholders, creditors or tax authorities.
Writing that the auditor must always attend the general meeting personally.
Students ignore the exemption and the representative option.
Fix: Section 146 allows attendance through an authorised representative who is qualified to be an auditor, and the company may exempt the auditor from attending.
Forgetting the firm's position when partners commit fraud.
Students think only of an individual auditor.
Fix: State that the partner and the firm are jointly and severally liable, and for criminal liability other than fine only the concerned partner or partners are liable.

Worked examples

Example 1

M/s Rao & Co, chartered accountants, are the statutory auditors of Zenith Ltd. During the year the firm also maintained Zenith's books of account for a fee. It also gave investment advice to Zenith's subsidiary through a consultancy firm that is controlled by one of its partners. Examine the position under the Companies Act, 2013.

Show the solution

Provision: Section 144 bars an auditor from providing accounting and book keeping services and investment advisory services, directly or indirectly, to the company, its holding company or its subsidiary company.
Facts: the firm itself maintained the books of Zenith Ltd. Investment advice was given to Zenith's subsidiary through a consultancy controlled by a partner of the firm.
Application to book keeping: accounting and book keeping is a listed service and the firm gave it directly to the company. It is clearly prohibited.
Application to investment advice: investment advisory services is a listed service, and the subsidiary is covered. For a firm, the Explanation treats services given through any other entity in which the firm or any partner has significant influence or control as indirect services. The consultancy is controlled by a partner, so the advice is an indirect service by the firm and is prohibited. If the consultancy were not controlled or influenced by the firm or a partner, and did not use their name or brand, this limb would not apply.
Consequence: Section 147(2) applies to the auditor for contravening Section 144, with fine of ₹25,000 to ₹5,00,000 or four times the remuneration, whichever is less. If done knowingly or willfully with intention to deceive, imprisonment up to one year and a higher fine apply. The company and officers in default also face Section 147(1) fines.

Answer: Both services are prohibited under Section 144. The book keeping is a direct contravention. The investment advice to the subsidiary is an indirect contravention because the consultancy is controlled by a partner. The firm faces a fine under Section 147(2), and the company and its officers in default face fines under Section 147(1).

Example 2

An auditor of a company knowingly and with intent to deceive its creditors gives an audit report with false statements. He is convicted under Section 147(2). The audit remuneration was ₹2,00,000. State the maximum fine and the other consequences.

Show the solution

Provision: the proviso to Section 147(2) covers knowing or willful contravention with intention to deceive the company, shareholders, creditors or tax authorities.
Imprisonment: up to one year.
Fine: not less than ₹50,000 and up to ₹25,00,000 or eight times the remuneration, whichever is less.
Compute eight times remuneration: 8 × ₹2,00,000 = ₹16,00,000.
Compare: ₹16,00,000 is less than ₹25,00,000, so the upper limit is ₹16,00,000.
Consequences under Section 147(3): on conviction he must refund the remuneration received to the company and pay damages for loss arising from incorrect or misleading statements made in his audit report. Damages may be payable to the company, statutory bodies or authorities, or members or creditors.

Answer: Imprisonment up to one year and a fine of at least ₹50,000 and at most ₹16,00,000. He must also refund the ₹2,00,000 remuneration and pay damages for the loss caused by the misleading statements.

Exam tips

Learn the nine heads of Section 144 as a list. MCQs usually test whether one named service is on it.
Practise one-line answers on the four fine ranges. Wrong-person errors lose easy marks.
In case-based answers always use provision, facts, conclusion. Name Section 144, 146 or 147 clearly.
When a question mentions a firm or relatives, bring in the Explanation on 'directly or indirectly' and the joint and several liability of partners.
Read for words like 'knowingly', 'willfully' and 'intention to deceive'. They decide whether the proviso applies.

Practice questions from Audit and Auditors

Non-Audit Services, Auditor's Liability and Penalties in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA IntermediatePenalties and Liabilities of Auditors

Non-Audit Services, Auditor's Liability and Penalties: frequently asked questions

Which services can an auditor not provide under Section 144?

Accounting and book keeping, internal audit, design and implementation of financial information systems, actuarial services, investment advisory, investment banking, outsourced financial services, management services and any other prescribed services. The ban applies to the company, its holding company and its subsidiary company, directly or indirectly.

Can an auditor give any other service to the company?

Yes, services not on the banned list can be given. They must be approved by the Board of Directors or the audit committee, as the case may be.

What is the penalty if an auditor breaches Section 144?

Under Section 147(2) the fine is not less than ₹25,000 and may extend to ₹5,00,000 or four times the remuneration, whichever is less. If the breach is knowing or willful with intent to deceive, imprisonment up to one year and a higher fine apply.

Must the auditor attend every general meeting?

Under Section 146 the auditor must attend unless the company exempts him. He may attend personally or send an authorised representative who is qualified to be an auditor. He has the right to be heard on business that concerns him as auditor.