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CA Final · Advanced Auditing, Assurance and Professional Ethics · Due Diligence, Investigation & Forensic Accounting

Meera, a CA in practice, is the statutory auditor of Orion Pharma Ltd. The company asks her firm to also perform a forensic investigation into suspected misappropriation of inventory in a division and report findings to the Board. Considering the Code of Ethics and the Companies Act, which conclusion is correct?

She may accept it if the service is not among those prohibited for auditors under section 144, such as internal audit, and only after evaluating independence threats and applying safeguards under the Code of Ethics. Non-audit services are not banned wholesale, nor allowed without evaluation.

  1. AShe cannot accept it, as any non-audit service to an audit client is prohibited
  2. BShe may accept it only if it is not a service prohibited under section 144 of the Companies Act, 2013, such as internal audit, and threats to independence are evaluated and safeguardedCorrect
  3. CShe may accept it without any evaluation, since investigation is outside the audit
  4. DShe may accept it only if the fee for it is lower than the audit fee

Explanation

Section 144 bars the auditor from specified services such as accounting and book keeping, internal audit, design of financial information systems, actuarial, investment advisory, investment banking, outsourced financial services and management services. Forensic investigation is not in this list, but the Code requires evaluating self-review and management threats and applying safeguards. A blanket ban or no evaluation is wrong, and fee comparison is not the test.

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