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CA Final · Advanced Auditing, Assurance and Professional Ethics · Internal Audit

Sunrise Agro Ltd, an unlisted public company, has engaged its statutory auditor, Mehta & Co., to also carry out the company's internal audit on a fee basis, arguing that the firm's knowledge of the company will make the work efficient. The Board has approved this arrangement. What is the correct position under the Companies Act, 2013?

The arrangement is not permitted. Section 144 bars an appointed statutory auditor from providing internal audit services to the company, whether directly or indirectly. Board approval, a lower fee or using a different partner of the same firm cannot remove this statutory prohibition.

  1. APermitted, because the Board has approved the additional service
  2. BPermitted, provided the internal audit fee is lower than the statutory audit fee
  3. CNot permitted, because internal audit is a service an auditor appointed under the Act cannot render, directly or indirectly, to the companyCorrect
  4. DPermitted, provided the engagement is carried out by a different partner of the same firm

Explanation

Section 144 allows the auditor to render only services approved by the Board or audit committee, but it expressly excludes internal audit from the permitted services. Board approval therefore cannot cure the prohibition. Using a different partner is also no escape, since the prohibition covers services rendered by the firm itself or through its partners.

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