CA Final · Advanced Auditing, Assurance and Professional Ethics · Internal Audit
Himalaya Textiles Ltd, an unlisted public company, has its statutory audit done by Mehta & Associates, Chartered Accountants. The CFO proposes to appoint the same firm as internal auditor for the year, since the firm already knows the business. What is the correct conclusion under the Companies Act, 2013?
The appointment is not permissible. Section 144 of the Companies Act, 2013 bars the statutory auditor from rendering internal audit services, directly or indirectly. Board approval covers only other permitted services, and using a different engagement partner does not remove the prohibition on the firm.
- AThe appointment is permissible if the Board approves it, because the Board can approve non-audit services
- BThe appointment is permissible if the firm uses a separate engagement partner for internal audit
- CThe appointment is not permissible, because internal audit is a service the statutory auditor cannot render to the companyCorrect
- DThe appointment is permissible provided the audit committee records the fee separately
Explanation
Section 144 lists internal audit among services that an auditor appointed under the Act shall not provide, whether directly or indirectly. Board or audit committee approval applies only to other permitted services, so option A is wrong. A different partner does not cure the bar, since the firm is covered.
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