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

Mr. Iyer, an individual practising chartered accountant, is the statutory auditor of Sagar Foods Ltd. His brother, who is his relative, runs a firm that designs and implements the financial information system of Sagar Foods Ltd. Which statement is correct under Section 144 of the Companies Act, 2013?

Services rendered by the auditor's relative count as rendered indirectly by the individual auditor. Since design and implementation of a financial information system is a listed prohibited service, the arrangement breaches Section 144, and audit committee approval cannot cure it.

  1. AThere is no breach, because the services are rendered by the brother and not by Mr. Iyer personally
  2. BThere is no breach if the audit committee approves the engagement
  3. CA breach arises only if Mr. Iyer receives a share of the fees
  4. DThe services are treated as rendered indirectly by Mr. Iyer through his relative, and design and implementation of a financial information system is a barred serviceCorrect

Explanation

For an individual auditor, 'directly or indirectly' includes services rendered through his relative or any connected person. Design and implementation of any financial information system is a listed barred service. Approval by the Board or audit committee applies only to services outside the prohibited list, and fee sharing is not a condition.

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