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CA Intermediate · Corporate and Other Laws · Audit and Auditors

Prakash Steels Ltd has a paid-up capital of Rs 8 crore and borrowings from banks of Rs 30 crore, and its turnover is Rs 120 crore. Its statutory auditor, CA Rohit, is about to be engaged for the year. Which of the following services, if rendered by Rohit to the company, would be prohibited under the Companies Act, 2013 as a non-audit service?

Internal audit of the company is prohibited for its statutory auditor. Section 144 bars services such as accounting, internal audit, actuarial, investment advisory and management services to the company, its holding or its subsidiary. The statutory audit and routine certification are not prohibited.

  1. AInternal audit of the companyCorrect
  2. BCertification work required by a statute, such as a certificate under a loan covenant
  3. CReporting on tax audit under the Income-tax law
  4. DAuditing the financial statements of the company as statutory auditor

Explanation

Section 144 prohibits the auditor from providing directly or indirectly certain services to the company and its holding or subsidiary, including accounting and book-keeping, internal audit, design of financial information systems, actuarial, investment advisory, investment banking, rendering of outsourced financial services and management services. Internal audit is therefore barred. Tax audit and certification are not in the prohibited list, and the statutory audit is the auditor's core function. So internal audit is the prohibited service.

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