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CA Intermediate · Corporate and Other Laws · Audit and Auditors

Ravi & Co., chartered accountants, audit Lotus Engineering Ltd. During the year, the company asked Ravi & Co. to design its accounting and financial information system and also to carry out its internal audit. What is the legal position under the Companies Act, 2013?

Ravi & Co. cannot provide either service. The Companies Act prohibits a statutory auditor from providing internal audit and design or implementation of financial information systems to the company, directly or indirectly. Audit committee approval or separate fees does not remove the prohibition.

  1. ABoth services are permitted if the audit committee approves
  2. BRavi & Co. may render these services if fees are charged separately
  3. CRavi & Co. cannot render these services to the company, as the Act prohibits an auditor from providing them directly or indirectlyCorrect
  4. DOnly internal audit is prohibited; designing systems is allowed

Explanation

The Act lists services which an auditor must not provide to the company, its holding or subsidiary: accounting and book keeping, internal audit, design and implementation of financial information systems, actuarial, investment advisory, investment banking, rendering of outsourced financial services, and management services. Both services here are prohibited, regardless of approval or separate fees.

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