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CA Final · Advanced Auditing, Assurance and Professional Ethics · Internal Audit

Himalaya Agro Ltd, an unlisted public company, has appointed Sharma & Associates as its statutory auditor. The CFO proposes that the same firm also carry out the company's internal audit for the year, as the firm already knows the business well. The Board has approved the proposal. What is the correct position under the Companies Act, 2013?

The statutory auditor cannot also perform the company's internal audit. Section 144 expressly prohibits internal audit among non-audit services, whether rendered directly or indirectly, and Board or audit committee approval cannot override that prohibition, nor can assigning a different partner.

  1. APermitted, because the Board has approved the additional service
  2. BPermitted, provided the audit committee also ratifies it within three months
  3. CNot permitted, because internal audit is a service the statutory auditor cannot render to the company, directly or indirectlyCorrect
  4. DPermitted, provided a different partner of the firm handles the internal audit

Explanation

Section 144 lists internal audit among services an auditor appointed under the Act cannot provide. Board approval applies only to permitted services. Using a different partner is also caught, because the prohibition extends to services rendered through the firm's partners or associated entities.

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