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CS Professional · Internal and Forensic Audit · Forensic Audit: Laws and Regulations

Kapoor Steels Ltd is directed to have its cost records audited under Section 148. The board proposes to appoint Rao & Co., the company's statutory auditor under Section 139, to also conduct the cost audit to save fees. Which statement is correct under Section 148?

The proposal is not permitted. The proviso to Section 148(3) bars a person appointed under Section 139 as the company's auditor from being appointed to audit its cost records. The cost audit is in addition to the Section 143 audit, so no resolution can cure the conflict.

  1. AThe proposal is not permitted, because a person appointed as auditor under Section 139 cannot be appointed to audit cost recordsCorrect
  2. BThe proposal is permitted if the members approve it by special resolution
  3. CThe proposal is permitted because the cost audit replaces the audit under Section 143
  4. DThe proposal is permitted if Rao & Co. reports to the Central Government instead of the Board

Explanation

The first proviso to Section 148(3) says no person appointed under Section 139 as an auditor of the company shall be appointed for conducting the audit of cost records. Section 148(4) adds that the cost audit is in addition to the audit under Section 143, so it does not replace it. Member approval cannot override the bar.

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