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CA Intermediate · Auditing and Ethics · Audit of Banks

CA Deepak, the statutory auditor of a private sector bank, wants to accept an engagement to provide internal audit services on the bank's treasury function in the same year. What is the correct position?

The engagement is not permitted because the Companies Act prohibits a statutory auditor from rendering internal audit services to the company it audits, as that impairs independence. Audit committee approval or the level of fees cannot override the statutory prohibition.

  1. APermitted because internal audit is only advisory in nature
  2. BPermitted if the bank's audit committee approves, whatever the nature of the service
  3. CNot permitted because the Companies Act prohibits a statutory auditor from rendering internal audit services to the companyCorrect
  4. DPermitted only if the fees are below the statutory audit fees

Explanation

The Companies Act bars an auditor from providing certain services to the company, including internal audit, as it would impair independence. Audit committee approval or lower fees do not remove the prohibition, and the advisory nature is irrelevant.

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