MANY CA FIRMS INCLUDING BIG FIRMS MAY LOOSE AUDIT OF UTILITY SERVICE PROVIDERS & OTHER COMPANIES: BY CA NITESH MORE

Many CA firms including big Firms may lose audit of Companies providing utility service providers & other companies due to the certain new impractical disqualifications inserted in the new Companies Act. Sec 141(3) of the Companies Act, 2013 states that the following persons shall not be eligible for appointment as an auditor of a company, namely:

Ø  a person or a firm who, whether directly or indirectly, has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed;

COMMENTS:  The expression “business relationship” has not been defined.  CA Firms receives utility services such as electricity, telephones etc from their clients at their head office, branches and homes. They also receive services relating to hotels, insurance, hospitals, banking etc.

ISSUES:

1)      A question will arise, “Can they continue as auditor of those Companies after receiving any such service?

2)      A CA cannot engage himself in any other business. Then, why such   IMPRACTICAL disqualification has been brought in the statute?

3)      What the Govt. intends to achieve by bringing such disqualifications even without any monetary limit?

4)      Why the expression “indirect” has been used above?

SUGGESTIONS:

1. It is suggested that the expression “business relationship” should be defined.

2. Utility services should be excluded from the definition of business connection.

3. A monetary ceiling should be provided for “business connection”.

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0 responses to “Receiving Service from Clients may disqualifies you to Continue as an Auditor”

  1. SATYAM YADAV says:

    There is no issue on the term “indirect business relationship” because providing Electricity,telephone services, etc are mere a client-principle relationship not the business relationship.

  2. Rahulkumar Singh says:

    There is no issue on the term “indirect business relationship” because providing Electricity,telephone services, etc are mere a client-principle relationship not the business relationship.

  3. CA Ashish Kedia says:

    As also mentioned by the author, there are many such provisions in the New Companies Act which seek to cast additional burden on the auditors to increase independence. However, the moot question is Can the auditor really and truly be independent till the time he receives audit fee from the client.

    In my opinion this is the biggest issue that needs to be addressed.
    Another alternative is to get audits done subject to some kind of review which is done sincerely and timely (and not like Peer review). This will not only reduce the need for imposing such impractical and harsh provisions but will also make auditing fraternity more accountable to client and to stakeholders.

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