Companies Act Section 144 — Auditor not to render certain services
CHAPTER X AUDIT AND AUDITORS
Commercial / Corporate
Summary
An auditor appointed under this Act may provide the company with other services only if the Board of Directors or the audit committee approves them. However, the approved services cannot include any of the listed services, whether those services are provided directly or indirectly to the company, or to its holding company or subsidiary company.
Under clause (a), accounting and book keeping services are prohibited. Under clause (b), internal audit services are prohibited. Under clause (c), the design and implementation of any financial information system is prohibited. Under clause (d), actuarial services are prohibited. Under clause (e), investment advisory services are prohibited. Under clause (f), investment banking services are prohibited. Under clause (g), rendering of outsourced financial services is prohibited. Under clause (h), management services are prohibited. Under clause (i), any other kind of services as may be prescribed are also prohibited.
The proviso states that if an auditor or audit firm was already performing any non-audit services before the commencement of this Act, they must comply with this section before the closure of the first financial year after the date of such commencement.
The explanation clarifies that the term directly or indirectly includes rendering of services by the auditor in two cases. First, if the auditor is an individual, it includes services rendered by the individual himself, or through his relative, or through any other person connected or associated with such individual, or through any other entity in which the individual has significant influence or control, or whose name, trademark, or brand is used by the individual. Second, if the auditor is a firm, it includes services rendered by the firm itself, or through any of its partners, or through its parent, subsidiary, or associate entity, or through any other entity in which the firm or any partner has significant influence or control, or whose name, trademark, or brand is used by the firm or any of its partners.
Official Text
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.