CA Final · Advanced Auditing, Assurance and Professional Ethics · Internal Audit
Kaveri Textiles Ltd, a company for which internal audit is mandatory, has its statutory audit firm, Mehta & Associates, also proposing to carry out the company's internal audit for a fee approved by the Board. As the engagement partner of another firm advising the Board, what is the correct conclusion under the Companies Act, 2013?
The statutory auditor cannot also be the internal auditor. Section 144 lists internal audit among services an auditor must not render, directly or indirectly, so Board or audit committee approval cannot validate the engagement, and using a different partner of the same firm does not cure it.
- APermitted, because the Board has approved the engagement and the fee
- BPermitted, provided the audit committee also ratifies the engagement
- CNot permitted, because the statutory auditor cannot render internal audit services to the company, directly or indirectlyCorrect
- DPermitted, provided a different partner of the firm performs the internal audit
Explanation
Section 144 bars an auditor appointed under the Act from providing internal audit services, whether directly or indirectly, even if other services may be approved by the Board or audit committee. Board approval does not override this list of prohibited services. Using a different partner is still rendering the service through the firm, so option D is wrong.
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