Audit

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This discussion examines the ethical and legal implications of an auditor setting up a separate proprietorship in their spouse's name to handle account maintenance for entities they audit. While the auditor's name isn't directly on the new firm, the core issue is maintaining independence and avoiding self-review threats. The consensus is that this practice is likely invalid under both company law and professional ethics, as well as tax audit regulations (specifically referencing Section 288(2) of the Income Tax Act due to the spouse being a 'relative'). The recent increase in the tax audit turnover limit to £5 crore may encourage such practices.

MUSKAAN SEHGAL

MUSKAAN SEHGAL (Querist)
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09 March 2020 if any ca is in practice. and doing audit of some entities and opens a another sole proprietorship practice entity in the name of his wife (his name is not in new practice firm) for account maintenance of same entities( in reality he is maintaining account) of whom he is doing auditing .
Is it valid in eyes of law because the main purpose of various provisions is that the auditor must be independent . but threat of self review is exist here.

Eswar Reddy S

Eswar Reddy S (Expert)
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09 March 2020 Check the auditor disqualifications under companies act and professional ethics. Both donot allow above things..

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CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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09 March 2020 In case of companies it's not allowed but in case of other entities it's not a problem.

Eswar Reddy S

Eswar Reddy S (Expert)
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09 March 2020 Not only company auditor subject to disqualifications but also tax auditor is also subject to similar disqualifications to protect the interest of government revenue. Kindly check section 288(2) of income tax act, Since spouse comes under the definition of relationship, he is disqualified to become tax auditor

Eswar Reddy S

Eswar Reddy S (Expert)
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09 March 2020 I mean relative.. Section 288(2) clearly says similar provisions of company auditor disqualifications are applicable to tax auditor also.It has given few provisions for tax auditor disqualifications

MUSKAAN SEHGAL

MUSKAAN SEHGAL (Querist)
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09 March 2020 yes I told them .He is my articleship principal but they scold me for this

Eswar Reddy S

Eswar Reddy S (Expert)
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09 March 2020 Budget has increased the turnover limit to 5crores for tax audit. They may take the advantage using this provision from next FY..

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