Statutory auditors play a crucial role in upholding the accuracy and reliability of financial statements for companies. To ensure their independence and integrity, the Companies Act, 2013, includes provisions that regulate the activities of statutory auditors. Section 144 of the Act specifically outlines certain assignments that statutory auditors are not permitted to accept. This article explores the provisions of Section 144 and highlights that the assignment of the "Compilation of Financial Statements from Books of Accounts" of the Auditee Company fall under its purview.
128. Books of account, etc., to be kept by company
(1) Every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company, including that of its branch office or offices, if any, and explain the transactions effected both at the registered office and its branches and such books shall be kept on accrual basis and according to the double entry system of accounting:
As per the provisions of Section 128, maintenance of Books of Accounts and preparation of Financial Statements is the responsibility of Management of the Company.
144. Auditor not to render certain services.
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), 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
As per the Provisions of Section 144, Statutory Auditor of the Company is prohibited to provide certain services to the Auditee Company, one of which is "management services".
Section 144 of the Companies Act, 2013, places great importance on maintaining the independence of statutory auditors and avoiding conflicts of interest. It enumerates several assignments that statutory auditors are prohibited from accepting from the Auditee Company or its Associated Entities. The primary objective of this provision is to ensure that auditors’ independence or integrity is not compromised.
Conclusion
Compilation of Financial Statements from Books of Accounts being part of the Management Services, falls under the purview of prohibitive Provisions of Section 144. And therefore Statutory auditors can not accept assignment involving Compiling Financial Statements from Books of Accounts. This prohibition ensures that auditors maintain their independence and do not become directly involved in the preparation of financial statements they are later required to audit objectively.
Section 144 of the Companies Act, 2013, establishes clear guidelines regarding the assignments that statutory auditors are not permitted to accept. These restrictions are in place to safeguard auditor independence and ensure the integrity of financial reporting. By strictly adhering to the provisions of Section 144, statutory auditors can maintain their objectivity, mitigate conflicts of interest, and instill confidence in the financial statements they audit.
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