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

CA Rohan is the statutory auditor of Sundaram Engineering Ltd. During the audit, the company's management asks him to also act as the internal auditor of the same company. Under Section 144 of the Companies Act, 2013, what is the position?

The engagement is not permitted. The Companies Act, 2013 bars a statutory auditor from rendering internal audit services to the company, its holding company or subsidiaries. Approval by the audit committee, lower fees or abstaining from signing do not remove the prohibition.

  1. APermitted, if the audit committee approves it
  2. BPermitted, if the fees for internal audit are lower than the statutory audit fees
  3. CNot permitted, since internal audit is a service prohibited to the statutory auditor of the companyCorrect
  4. DPermitted, if CA Rohan does not sign the internal audit report

Explanation

The Companies Act prohibits an auditor from providing, directly or indirectly, certain services to the company, including internal audit. Neither audit committee approval nor lower fees nor not signing the report cures the prohibition. So the engagement cannot be accepted.

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