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

CA Mehta is the statutory auditor of Sundaram Foods Ltd. During the year, he also provided the company with internal audit services through his firm, and it is also proposed that his firm will design its accounting software. Under Section 144 of the Companies Act, 2013, which of the following is the correct position?

Both services are prohibited. Section 144 of the Companies Act, 2013 bars the statutory auditor from providing internal audit and design and implementation of financial information systems to the company or its holding or subsidiary, directly or indirectly, and neither audit committee approval nor fee limits can permit them.

  1. ABoth services are prohibited for the statutory auditor, directly or indirectly, as they are listed non-audit servicesCorrect
  2. BOnly internal audit is prohibited; designing accounting software is permitted
  3. CBoth are permitted if the audit committee approves
  4. DBoth are permitted provided fees do not exceed the audit fee

Explanation

Section 144 bars an auditor from providing, directly or indirectly, certain services to the company, its holding or subsidiary, including accounting and book-keeping services, internal audit, and design and implementation of financial information system. Audit committee approval or fee limits do not cure the prohibition. Hence both services are prohibited.

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