Business Laws and Ethics · Operational and Financial Control

Section 144 Scope: Auditor, Associated Persons and Group Companies

Updated 10 October 2026 · Fact-checked

Section 144 bars an auditor from rendering the listed services to the company, its holding company or its subsidiary company. The bar applies whether the service is given directly or indirectly, including through relatives, partners, parent, subsidiary or associate entities, or entities using the auditor's name. To solve a question, check who gave the service, to whom, and what it was.

Understand Scope: Auditor, Associated Persons and Group Companies

Section 144 stops an auditor from taking on work that would make them review their own work or serve management. Independence is the reason. An auditor who keeps the books cannot fairly say the books are true and fair.

The section has three layers of scope. First, who is restricted: the auditor appointed under the Act, whether an individual or a firm. Second, to whom the service goes: the company, its holding company or its subsidiary company. Third, how it is given: directly or indirectly. Note that the section names holding and subsidiary companies. It does not name associate companies as recipients.

The Explanation defines "directly or indirectly". For an individual auditor, it includes services through his relative, any other person connected or associated with him, or any entity in which he has significant influence or control, or whose name, trade mark or brand he uses. For a firm, it includes services through the firm itself, any of its partners, 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 the firm or a partner uses.

The section also allows some work. The auditor may provide other services that the Board or the audit committee, as the case may be, approves. Only the listed services (and any prescribed) are forbidden.

Do not confuse this with section 141. Section 141 deals with eligibility and disqualification for appointment. Clause 141(3)(i) links the two: a person who directly or indirectly renders a section 144 service to the company, its holding company or its subsidiary company is disqualified. If this happens after appointment, section 141(4) says the auditor must vacate office, and this is a casual vacancy.

Key rules to remember

Services barred: Section 144 list: (a) accounting and book keeping; (b) internal audit; (c) design and implementation of any financial information system; (d) actuarial; (e) investment advisory; (f) investment banking; (g) outsourced financial services; (h) management services; (i) any other prescribed service; Nine heads in the section. Item (i) is open-ended through rules.
Recipients covered: Company + its holding company + its subsidiary company; Services to any of these three are caught. Learn that associate company is not named in section 144 itself.
Individual auditor: indirect routes: Himself, or through his relative, or any other person connected or associated with him, or any entity in which he has significant influence or control or whose name, trade mark or brand he uses; Taken from the Explanation to section 144.
Firm auditor: indirect routes: Itself, or through any partner, or its parent, subsidiary or associate entity, or any entity in which the firm or any partner has significant influence or control or whose name, trade mark or brand the firm or any partner uses; Here associate entities of the auditor firm are caught, not associates of the audited company.
Approval of other services: Other services allowed only if approved by the Board of Directors or the audit committee, as the case may be; The permitted services are those outside the prohibited list.
Link to section 141: Section 141(3)(i): a person who directly or indirectly renders a section 144 service to the company, its holding or subsidiary company is not eligible. Section 141(4): disqualification after appointment means vacating office, a casual vacancy; Section 144 is the conduct rule. Section 141 is the consequence for eligibility.

How to solve Scope: Auditor, Associated Persons and Group Companies questions

Use this method for any scenario question on the scope of section 144.

1Identify the auditor: individual or firm. This decides which limb of the Explanation applies.
2Identify who actually performed the service: the auditor, a relative, a partner, a group entity of the auditor, or an entity using the auditor's name.
3Identify the recipient: the audited company, its holding company or its subsidiary company. A sister or associate company needs careful reading; section 144 does not name it.
4Match the service to the list in clauses (a) to (i). Judge by substance, not by the label used in the engagement letter.
5Decide whether the service is direct or indirect, and quote the relevant limb of the Explanation.
6Conclude: prohibited or permitted. If permitted, note that Board or audit committee approval is needed.
7Add the consequence: section 141(3)(i) makes the person ineligible, and under section 141(4) the auditor vacates office with a casual vacancy if it happens after appointment.

Quickest way: Who, to whom, what, how

When to use it: Use for MCQs and short scenario questions where you have under two minutes.

Who did the work: auditor or someone linked to the auditor?
To whom: company, holding or subsidiary?
What: is it in the list of nine heads?
How: direct or through a relative, partner or entity linked by control, influence or name?
If all four fit, the answer is prohibited. If any one is missing, it is likely permitted, subject to approval.

Common mistakes in Scope: Auditor, Associated Persons and Group Companies

Thinking section 144 covers only services given to the audited company.
The heading says services to the company, and students skip the words about holding and subsidiary companies.
Fix: Always write company, holding company and subsidiary company together.
Saying a service is allowed because the auditor did not do it personally.
Students ignore the word indirectly.
Fix: Read the Explanation. Work done by a relative, partner, parent, subsidiary or associate entity, or an entity using the auditor's name, counts.
Mixing up section 141 and section 144.
Both deal with auditor independence and clause 141(3)(i) refers to section 144.
Fix: Section 141 is about eligibility and disqualification. Section 144 lists forbidden services. Clause 141(3)(i) connects them.
Believing all non-audit services are banned.
Students remember the list but forget the opening words.
Fix: Other services are allowed if approved by the Board or audit committee, as the case may be, and are not in the list.
Claiming associate companies of the audited company are covered recipients.
Section 141 mentions associate companies, so students carry it over.
Fix: Section 144 names the company, its holding company and its subsidiary company as recipients. Associate entities appear only in the firm's indirect routes.

Worked examples

Example 1

Rao & Co., a firm of chartered accountants, is the statutory auditor of Kaveri Textiles Ltd. A partner of Rao & Co. separately runs a business in which he has significant control, and that business keeps the books of accounts of Kaveri Textiles Ltd. Is section 144 breached?

Show the solution

The auditor is a firm, so apply the firm limb of the Explanation.
The service is accounting and book keeping, which is item (a) of the prohibited list.
The recipient is Kaveri Textiles Ltd., the audited company.
The service is not given by the firm itself but through an entity in which a partner has significant control. The Explanation counts this as an indirect service.
So the prohibition applies, and under section 141(3)(i) the firm becomes ineligible. If this arises after appointment, section 141(4) requires it to vacate office and the vacancy is a casual vacancy.

Answer: Yes. Section 144 is breached because accounting and book keeping is rendered indirectly through an entity controlled by a partner. The firm is disqualified under section 141(3)(i) and must vacate office under section 141(4).

Example 2

Mehta Associates audits Sagar Ltd. It has been asked to carry out the internal audit of Sagar Ltd.'s subsidiary, Sagar Logistics Ltd. A partner says that since Mehta Associates is not the auditor of the subsidiary, there is no issue. Advise.

Show the solution

The service requested is internal audit, which is item (b) of the list.
The recipient is a subsidiary company of the company being audited. Section 144 covers services to the company or its holding or subsidiary company.
The partner's reasoning fails because the section does not depend on being the subsidiary's auditor. It depends on being the auditor of the company and rendering the service to the group company named.
So the service is prohibited, and accepting it would attract section 141(3)(i).

Answer: The partner is wrong. Internal audit is a prohibited service, and rendering it to the subsidiary of the audited company falls within section 144. Mehta Associates should decline the assignment.

Exam tips

Quote the Explanation limb that matches the auditor: individual or firm. This earns step marks.
In scenario questions, underline the recipient. Holding and subsidiary companies are the usual trap.
State the link to section 141(3)(i) and 141(4) in a line. Examiners like the consequence.
For MCQs, check whether the service is in the list of nine heads before judging direct or indirect.
Mention Board or audit committee approval when the service is outside the list.

Practice questions from Operational and Financial Control

Scope: Auditor, Associated Persons and Group Companies: frequently asked questions

Does section 144 apply to holding and subsidiary companies?

Yes. The auditor cannot render the listed services to the company, its holding company or its subsidiary company. This applies whether the service is given directly or indirectly.

What does directly or indirectly mean in section 144?

The Explanation says it includes services through relatives, connected persons, partners, or entities the auditor controls or influences or whose name or brand is used. For firms it also includes parent, subsidiary or associate entities of the firm.

What is the difference between section 141 and section 144?

Section 141 sets who may or may not be appointed as auditor. Section 144 lists services the auditor cannot provide. Clause 141(3)(i) disqualifies a person who renders a section 144 service.

Can an auditor provide any non-audit service?

Only services outside the prohibited list, and only if approved by the Board of Directors or the audit committee, as the case may be.