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

Case: Sagar Pharma Ltd, a listed company, plans to appoint CA Nair's firm as statutory auditor. The firm has been providing internal audit outsourcing and book-keeping services to Sagar Pharma for the past two years. Which statement is correct as per the Companies Act, 2013 provisions on auditor independence? What is the position regarding the proposed appointment?

The firm cannot be appointed because the Companies Act, 2013 bars a statutory auditor from rendering services such as accounting, book-keeping and internal audit to the company directly or indirectly. This is an independence safeguard, and neither audit committee approval nor Board fee fixing can remove the disqualification.

  1. AThe firm may be appointed since internal audit and book-keeping are permitted for statutory auditors
  2. BThe firm may be appointed provided audit fees are fixed by the Board
  3. CThe firm may be appointed only if audit committee gives oral approval
  4. DThe firm cannot be appointed or continue because rendering services such as accounting and book-keeping or internal audit directly or indirectly to the company is prohibited for the auditorCorrect

Explanation

The Companies Act, 2013 prohibits an auditor from providing, directly or indirectly, services such as accounting and book-keeping, internal audit, and certain other services to the company, its holding or subsidiary. The firm's existing services disqualify it. Approvals or fee-fixing methods do not cure the prohibition.

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