Services the Auditor May Not Render, Signing, Attendance and Punishment
Chapter Thirty-Five
Syllabus topic none, this is an appendix
Pages 93 to 95 of 98
Section 144: services the auditor may not render
An auditor appointed under this Act shall provide to the company only such other services as are approved by the Board of Directors or the audit committee, but which shall not include any of the following services, whether rendered directly or indirectly to the company, or its holding company or subsidiary company.
| Prohibited service | |
|---|---|
| (a) | Accounting and book keeping services |
| (b) | Internal audit |
| (c) | Design and implementation of any financial information system |
| (d) | Actuarial services |
| (e) | Investment advisory services |
| (f) | Investment banking services |
| (g) | Rendering of outsourced financial services |
| (h) | Management services |
| (i) | Any other kind of service as may be prescribed |
Two features of the section are examined.
It reaches the group. The prohibition covers services to the company and to its holding company and its subsidiary company, so an auditor cannot keep the books of a subsidiary of the company he audits.
"Directly or indirectly" is defined. The Explanation extends it, for an individual, to services rendered by himself, his relative, any other person connected with him, or any entity in which he has significant influence or control; and for a firm, to services rendered by itself, or by any of its partners, or by its parent, subsidiary or associate entity, or by any other entity in which the firm or any partner has significant influence or control.
The reason for every clause is the same. An auditor who designed the system, wrote the books, valued the liabilities or advised on the investments would be auditing his own work, and no amount of care makes that independent.
Section 145: signing the report
The person appointed as auditor shall sign the auditor's report or sign or certify any other document of the company in accordance with section 141(2), and the qualifications, observations or comments on financial transactions or matters which have any adverse effect on the functioning of the company mentioned in the auditor's report shall be read before the company in general meeting and shall be open to inspection by any member.
| Two rules | |
|---|---|
| Who signs | Only a partner who is a chartered accountant, by the reference to section 141(2) |
| What happens to a qualification | It is read out at the general meeting and is open to inspection by any member |
The second rule is the point of the section. A qualification buried in a printed report that nobody reads would be worth little; the Act requires it to be read aloud to the members, which is the strongest thing an auditor can do short of an adverse opinion.
Section 146: attending the general meeting
All notices of, and other communications relating to, any general meeting shall be forwarded to the auditor, and the auditor shall, unless otherwise exempted by the company, attend either himself or through an authorised representative who is also qualified to be an auditor, and shall have the right to be heard at such meeting on any part of the business which concerns him as the auditor.
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