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CMA Intermediate · Business Laws and Ethics · Operational and Financial Control

Mehta & Associates, a firm of chartered accountants, is the statutory auditor of Kaveri Textiles Ltd. Kaveri's holding company asks Mehta & Associates to design and implement its financial information system. What is the position under the Companies Act, 2013?

The service is prohibited. The Companies Act, 2013 bars the auditor from listed services such as design and implementation of a financial information system whether rendered to the company or to its holding or subsidiary company, and approval or fee levels do not change that.

  1. APermitted, because the service is rendered to the holding company and not to Kaveri Textiles Ltd.
  2. BPermitted only if the Board of Kaveri approves it
  3. CProhibited, because the bar covers services rendered to the company or its holding or subsidiary companyCorrect
  4. DProhibited only if the fee exceeds the audit fee of Kaveri

Explanation

The prohibition on listed services applies whether they are rendered directly or indirectly to the company, or its holding company or subsidiary company. Designing and implementing a financial information system is a listed service, so it is barred even for the holding company. Board approval cannot cure a prohibited service, and fee comparison is irrelevant.

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