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CA Intermediate · Corporate and Other Laws · Audit and Auditors

CA Iyer is the statutory auditor of Kaveri Ltd. During the year he also rendered to the company, directly, services of internal audit and of designing and implementing its financial information systems. The company argues that he is highly competent and shareholders approved the arrangement in a general meeting. Which is the correct legal position under Section 144?

Both services are prohibited. Section 144 bars the statutory auditor from rendering internal audit and design and implementation of financial information systems to the company or its holding or subsidiary. Shareholders cannot waive the bar by resolution, and fee levels are irrelevant.

  1. AProhibited, as an auditor cannot render these services to the company, and shareholder approval does not cure itCorrect
  2. BPermitted, because shareholder approval in a general meeting removes the restriction
  3. CPermitted, provided fees for these services do not exceed audit fees
  4. DProhibited only for internal audit, while financial information systems services are permitted

Explanation

Section 144 bars an auditor from rendering, directly or indirectly, services such as accounting and book keeping, internal audit, and design and implementation of financial information systems, among others. The bar covers both listed services here. Shareholder approval or fee comparison cannot override the prohibition.

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