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CA Intermediate · Auditing and Ethics · Ethics and Terms of Audit Engagements

Kapoor & Co., statutory auditors of Zenith Pharma Ltd., are asked by the company's managing director to also provide internal audit services for the same company, being appointed as internal auditors, in addition to the statutory audit. The company is an unlisted public company. Which statement is correct under section 144 of the Companies Act, 2013?

This is not permitted. Section 144 of the Companies Act, 2013 prohibits a statutory auditor from providing internal audit services to the company, directly or indirectly. Audit committee approval or a lower fee does not remove this prohibition, since it protects the auditor's independence.

  1. APermitted, as internal audit is a part of the auditing profession
  2. BPermitted only if the audit committee approves in writing
  3. CNot permitted, since an auditor appointed under the Act cannot provide internal audit services to the companyCorrect
  4. DPermitted if the fee for internal audit is below the statutory audit fee

Explanation

Section 144 prohibits an auditor from providing to the company, directly or indirectly, certain services including accounting and book keeping, internal audit, design and implementation of financial information systems, actuarial, investment advisory, investment banking, rendering of outsourced financial services and management services. Neither committee approval nor fee levels cure this prohibition. The restriction extends to the auditor's holding, subsidiary and associate companies.

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