CA Final · Advanced Auditing, Assurance and Professional Ethics · Internal Audit
Rohan & Co, statutory auditors of Vihaan Ltd, hold a parent-level relationship with Rohan Advisory LLP, an entity in which a partner of Rohan & Co has significant influence. Vihaan's management wants Rohan Advisory LLP to perform the company's internal audit. What is the correct conclusion?
The engagement is not permitted. Section 144 prohibits the statutory auditor from providing internal audit directly or indirectly, and its Explanation treats services through any entity where a partner has significant influence or control as indirect. The LLP's separate legal identity and fee disclosure do not remove the prohibition.
- APermitted, since the LLP is a separate legal entity
- BPermitted, if the fee is disclosed to the audit committee
- CNot permitted, because services rendered through an entity in which a partner has significant influence are treated as rendered indirectly by the auditorCorrect
- DPermitted only if the LLP has no common partners with Rohan & Co
Explanation
Section 144 bars internal audit by the auditor directly or indirectly. The Explanation says that for a firm, indirect rendering includes services through any entity in which the firm or any partner has significant influence or control, or whose name is used. The LLP's separate legal status therefore does not help, and disclosure to the committee does not cure the prohibition.
Did you get it right without looking?
One question tells you little. A timed set on Internal Audit shows your real accuracy, how long you take and where you lose marks.
More Internal Audit questions
- Gramin Agro Producer Company, registered as a Producer Company, proposes to have its accounts internally audited by its finance manager, who…
- Kaveri Textiles Ltd, a company for which internal audit is mandatory, has its statutory audit firm, Mehta & Associates, also proposing to ca…
- Sunrise Agro Ltd, an unlisted public company, has engaged its statutory auditor, Mehta & Co., to also carry out the company's internal audit…
- Sharma & Co, chartered accountants, are the statutory auditors of Veda Textiles Ltd. The CFO asks the firm to also take up the company's int…
- The internal auditor of Rudra Steels Ltd, a listed company, wants to discuss weaknesses in internal controls directly with the Audit Committ…
- Kaveri Foods Ltd, a listed public company, has an Audit Committee of three directors, of whom two are independent. The Chief Internal Audito…