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CA Final · Advanced Auditing, Assurance and Professional Ethics · Overview of Audit of Public Sector Undertakings

Rao & Co., a firm of chartered accountants, is appointed statutory auditor of Bharat Urja Ltd., a Government company, by the Comptroller and Auditor General of India (C&AG). During the year the company's board proposes to pay the firm an additional fee for a management consultancy assignment. Which statement correctly reflects the position regarding the appointment and the proposal?

The appointment by the C&AG is valid for a Government company, and the auditor cannot render prohibited non-audit services such as management services to the company. Board approval or later intimation to the C&AG does not remove the restriction, so the consultancy assignment should be declined.

  1. AThe firm was validly appointed by the C&AG, and accepting a management consultancy assignment would be restricted because the auditor cannot render prohibited non-audit services to the companyCorrect
  2. BThe appointment is invalid because only the shareholders in the general meeting can appoint auditors of a Government company
  3. CThe firm may accept the consultancy work if the Board approves it, since Government companies are exempt from the restrictions on non-audit services
  4. DThe firm may accept the work provided the C&AG is informed after the assignment is completed

Explanation

In a Government company, the statutory auditor is appointed by the C&AG on the advice of whom the company's members cannot override. The Companies Act restricts the auditor from rendering certain services such as management services and other specified non-audit services to the company. Board approval does not lift this restriction, so the exemption claim is wrong.

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