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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Advanced Auditing, Assurance and Professional Ethics

Case: CA Rohit is the statutory auditor of Bharat Steel Ltd. The company asks his firm to also perform the internal audit function and to design and implement its financial information systems. Under the Companies Act, 2013 provisions on services not permitted to be rendered by an auditor, what is the position?

Both services are prohibited. The Companies Act, 2013 bars the statutory auditor and its associated entities from providing internal audit and design and implementation of financial information systems to the company, regardless of fee level or audit committee approval, because they threaten auditor independence.

  1. ABoth services are prohibited for the statutory auditor and its associated entitiesCorrect
  2. BBoth are permitted if the fee is below Rs 5 lakh
  3. COnly internal audit is prohibited; systems design is permitted
  4. DBoth are permitted with audit committee approval

Explanation

The Act bars the auditor from rendering services such as internal audit and design and implementation of financial information systems, among others, to the company and its holding or subsidiary companies. Audit committee approval or low fees do not cure the prohibition.

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