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CMA Intermediate · Business Laws and Ethics · Operational and Financial Control

Under the Companies Act, 2013, where the auditor is a firm, which of the following is covered by the expression 'directly or indirectly' for prohibited non-audit services?

Services rendered through any entity in which a partner of the audit firm has significant influence or control are covered. The Explanation to Section 144 extends 'directly or indirectly' beyond the firm itself to partners, parent, subsidiary, associates and entities using its name or brand.

  1. AServices rendered by the firm only through its own employees on payroll
  2. BServices rendered through any entity in which a partner of the firm has significant influence or controlCorrect
  3. CServices rendered only by the firm in its own name
  4. DServices rendered by a former client of the firm

Explanation

For a firm, 'directly or indirectly' includes services rendered by the firm itself, through any of its partners, through its parent, subsidiary or associate entity, or through any entity where the firm or any partner has significant influence or control or whose name, trade mark or brand is used. Hence the entity controlled or significantly influenced by a partner is covered. The other options are narrower or unrelated.

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