Amended and updated notes on section 144 of Companies Act 2013. Detail discussion on provisions and rules related to auditor not to render certain services.
Chapter X (Sections 139–148) of the Companies Act, 2013 (CA 2013) deals with the provisions related to audit and auditors. Section 144 of CA 2013 provides for auditor not to render certain services.
Recently, we have discussed in detail section 143 (Powers and duties of auditors and auditing standards) of CA 2013. Today, we learn the provisions of section 144 of Companies Act 2013.
The provisions of section 144 are effective from 1-April-2014. You may refer Notification No. S.O. 902(E) issued dated 27.03.2014. In this article, you will learn detail of the provisions of section 144 of the Companies Act 2013 read with the Companies (Audit and Auditors) Rules, 2014.
| Name of Act | The Companies Act 2013 |
|---|---|
| Enacted by | Parliament of India |
| Administered by | Ministry of Corporate Affairs (MCA) |
| Number of Chapters | 29 |
| Number of Sections | 484 (470-43+57) |
| Number of Schedules | 7 |
| You are reading: | |
| Chapter No. | X |
| Chapter Name | Audit and Auditors |
| Section No. | 144 |
| Section Name | Auditor not to render certain services |
| Monthly Updated Edition | Company Law PDF |
Company Statutory Auditors provide only Approved Services
According to section 144, an auditor appointed under the Companies Act, 2013 shall provide to the company only such other services as are approved by the Board of Directors or the audit committee. Accordingly, a Company statutory auditor appointed under section 139 of CA 2013 shall provide only those services that are approved by either the BOD or the Audit Committee of that company.
The provisions of section 144 has been introduced to prohibit statutory auditors from performing non-audit services to ensure independence and accountability of auditor. Actually, the auditor should also be fair and must not allow prejudice or unfairness to override his objectivity. He must be straight-forward, sincere and honest in his approach to his professional work.
List of Non-Audit Services that Company Auditor can not Render
The Board of Directors or Audit Committee of the company must approve other services to be rendered by the Statutory Auditor or CA Firm appointed u/s 139 of the CA 2013. However, such approved other services shall not include prohibited services. In other words, a company shall not approve the non-audit services specified under section 144 of the CA 2013.
Thus, an auditor or audit firm is not allowed to provide the following non-audit services either directly or indirectly to the company or its holding company or subsidiary company:
- (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; and
- (i) any other kind of services as may be prescribed.
Note that section 144(h) of the CA 2013 has restricted individual auditor or firm to provide “management services” but the meaning and scope of this expression has not been explained. Further, you may also refer the provisions of Clause 11 of Part I of the First Schedule to the Chartered Accountants Act, 1949 read with Regulation 190A of The Chartered Accountants Regulations, 1988.
A chartered accountant in practice shall not engage in any business or occupation other than the profession of accountancy, except with the permission granted in accordance with a resolution of the Council.
The Central Government has also kept the option open u/s 144(i) to add other kind of services in the list of non-audit services.
As per explanation given under section 144 of the CA 2013, the term “directly or indirectly” shall include rendering of services by the auditor as mentioned hereunder:
i) If Auditor is an Individual:
In case of auditor being an individual, the term “directly or indirectly” shall include rendering of services:
- a) Either by himself; or
- b) Through his relative; or
- c) Any other person connected or associated with such individual; or
- d) Through any other entity, whatsoever, in which such individual has significant influence or control, or whose name or trade mark or brand is used by such individual.
ii) If Auditor is a Firm:
In case of auditor being a firm, the term “directly or indirectly” shall include rendering of services:
- a) Either by itself; or
- b) Through any of its partners; or
- c) Through its parent, subsidiary or associate entity; or
- d) Through any other entity, whatsoever, in which the firm or any partner of the firm has significant influence or control, or whose name or trade mark or brand is used by the firm or any of its partners.
Punishment for Contravention of provisions of Section 144
Section 147 of the Companies Act, 2013 prescribed that if any of the provisions of section 144 is contravened, the following persons shall be punishable:
1) Company shall be punishable with Fine: Minimum ₹25,000; Maximum ₹5,00,000.
2) Every officer of the company who is in default shall be punishable with
- i) Imprisonment up to 1 year; or
- ii) Fine: Minimum ₹10,000; Maximum ₹1,00,000; or
- iii) Both, with fine and imprisonment.
3) Auditor: If an auditor of a company contravenes any of the provisions of section 144, the auditor shall be punishable with minimum fine of ₹25,000 which may extend to ₹5,00,000.
However, if an auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than ₹1,00,000 but which may extend to ₹25,00,000.
Section 144 of Companies Act 2013: Auditor not to render certain services
Section 144 shall come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014.
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, as the case may be, but which shall not include any of the following services (whether such services are rendered directly or indirectly to the company or its holding company or subsidiary company), namely: —
- (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; and
- (i) any other kind of services as may be prescribed:
Provided that an auditor or audit firm who or which has been performing any non-audit services on or before the commencement of this Act shall comply with the provisions of this section before the closure of the first financial year after the date of such commencement.
Explanation: For the purposes of this sub-section, the term “directly or indirectly” shall include rendering of services by the auditor, —
- (i) in case of auditor being an individual, either himself or through his relative or any other person connected or associated with such individual or through any other entity, whatsoever, in which such individual has significant influence or control, or whose name or trade mark or brand is used by such individual;
- (ii) in case of auditor being a firm, either itself or through any of its partners or through its parent, subsidiary or associate entity or through any other entity, whatsoever, in which the firm or any partner of the firm has significant influence or control, or whose name or trade mark or brand is used by the firm or any of its partners.