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

M/s Rao & Co., chartered accountants, are statutory auditors of Veda Textiles Ltd. Without being approved by anyone, a company in which a partner of Rao & Co. has significant influence provides design and implementation of Veda's financial information system. What is the position under Section 144?

The service is prohibited. Under the Explanation to Section 144, services rendered through any entity in which a partner of the audit firm has significant influence or control are treated as indirect services by the firm, and system design is a listed banned service.

  1. APermitted, as the service is rendered by a different legal entity
  2. BProhibited, as services through an entity in which a partner has significant influence are treated as indirect services by the firmCorrect
  3. CPermitted if the fee is below the audit fee
  4. DProhibited only if the partner also signs the audit report

Explanation

The Explanation to Section 144 says that for a firm, 'directly or indirectly' includes services through any entity in which the firm or any partner has significant influence or control. Design and implementation of a financial information system is a listed prohibited service. Being a separate legal entity is therefore no defence.

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