CA Final · Advanced Auditing, Assurance and Professional Ethics · Internal Audit
Veda Textiles Ltd, an unlisted company, has appointed its statutory auditor, Mehta & Associates, CAs. The CFO now asks the same firm to also carry out the company's internal audit for the year, for a separate fee approved by the Board. What is the correct position under the Companies Act, 2013?
The engagement is not permitted. Section 144 bars a statutory auditor from providing internal audit services to the company or its holding or subsidiary company. Board or audit committee approval covers only services that are not prohibited, so approval and a separate fee make no difference.
- APermitted, because the Board has approved the engagement and the fee is separate from the audit fee
- BNot permitted, because internal audit is among the services an auditor appointed under the Act cannot render to the companyCorrect
- CPermitted only if the firm uses a different engagement partner for the internal audit
- DPermitted only if the audit committee ratifies the engagement within three months
Explanation
Section 144 lists internal audit among the services an auditor appointed under the Act must not provide to the company, directly or indirectly. Board approval applies only to other permitted services, so it cannot cure a prohibited one. A different engagement partner does not change the position, because the firm itself is the auditor.
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