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

Patel & Associates are statutory auditors of Orion Ltd. Orion's wholly owned subsidiary, Orion Retail Ltd., wants Patel & Associates to design and implement its financial information system. Which statement is correct under Section 144?

The engagement is not allowed. Design and implementation of a financial information system is a prohibited service, and Section 144 applies the prohibition to services given to the company or to its holding or subsidiary company, so the subsidiary route gives no relief.

  1. AAllowed, because the service is for the subsidiary and not for Orion Ltd.
  2. BAllowed if the subsidiary's Board approves it
  3. CAllowed only if the fee is below the audit fee
  4. DNot allowed, because the prohibition covers services to the company or its holding or subsidiary companyCorrect

Explanation

Design and implementation of any financial information system is a listed prohibited service. Section 144 extends the bar to services rendered to the company or its holding company or subsidiary company. So the subsidiary's Board approval or fee comparison is irrelevant, and the engagement is barred.

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