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

Case: Mehra Pharma Ltd (a listed company) wants to buy back shares and has asked its auditor, CA Dinesh, to certify the permissible capital payment and the debt-equity ratio. Separately, the company's CFO is a close friend of Dinesh, and Dinesh's firm also maintains the company's books of account and designs its accounting software. The audit committee notes that Dinesh's firm has been paid for these services for several years. Which conclusion is most appropriate?

Dinesh cannot continue as statutory auditor while his firm provides accounting, book-keeping and financial information system design services, because the Companies Act, 2013 prohibits these services to the audited company. Audit committee approval or fee disclosure does not remove the prohibition, so the independence breach remains.

  1. ADinesh may continue as statutory auditor, as long as the fees for books maintenance are disclosed in the directors' report
  2. BDinesh may continue as statutory auditor because certifications are attest functions that do not affect independence
  3. CDinesh is disqualified from continuing as statutory auditor since the Companies Act, 2013 prohibits the auditor from rendering services such as accounting and book keeping to the audited companyCorrect
  4. DThe auditor is allowed to continue only if the audit committee approves the book-keeping services by a resolution

Explanation

Section 144 of the Companies Act, 2013 bars the auditor from providing certain services to the company, including accounting and book keeping services and design and implementation of financial information systems. Audit committee approval cannot permit prohibited services. Disclosure of fees does not cure the prohibition. The buyback certification itself is a permitted service.

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