CA Final · Advanced Auditing, Assurance and Professional Ethics · 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 internal audit for the year, saying a separate partner will handle it. What is the correct position under the Companies Act, 2013?
The firm cannot accept the engagement. Section 144 of the Companies Act, 2013 lists internal audit among services a statutory auditor must not render, directly or indirectly. Using another partner of the same firm is still the firm acting, so neither Board approval nor fee levels make it permissible.
- APermitted, because a different partner of the same firm will perform the internal audit
- BPermitted, provided the Board approves and the audit committee is informed
- CNot permitted, because internal audit is a prohibited service for the statutory auditor, whether rendered directly or indirectlyCorrect
- DPermitted only if the internal audit fee is lower than the statutory audit fee
Explanation
Section 144 bars an auditor from providing internal audit services to the company, its holding company or subsidiary, directly or indirectly. Indirect rendering includes services through the firm's partners. Board approval cannot override the prohibition; approval applies only to services not on the prohibited list. Hence assigning a different partner does not cure the problem.
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