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CA Intermediate · Auditing and Ethics · Ethics and Terms of Audit Engagements

CA Meera, a partner in an audit firm, is asked by a client to run its payroll processing in addition to the audit. The client is a listed company. Which is the correct ethical position?

The assignment is prohibited because payroll processing is an accounting and book-keeping service, which Section 144 of the Companies Act bars the statutory auditor from providing to the auditee company. Assigning another partner or charging a lower fee does not cure the prohibition.

  1. APermitted, as payroll is not mentioned in any law
  2. BProhibited, as accounting and book-keeping services, which include such work, cannot be rendered by the statutory auditor to the companyCorrect
  3. CPermitted if a separate partner handles it
  4. DPermitted if the fee is less than the audit fee

Explanation

Section 144 bars the auditor from providing accounting and book-keeping services to the auditee company, and payroll processing falls within these services as it involves maintaining accounting records. Using a separate partner or a lower fee does not remove the prohibition, since it applies to the auditor firm and entities in its network.

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