Internal auditor

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Querist : Anonymous

Querist : Anonymous (Querist)

20 September 2013 Sir,
Is it possible that the internal auditor of a holding company be a statutory auditor of a subsidiary company of said holding company.
Is internal auditor fall with in the definition of employee.

Nikhil Kaushik

Nikhil Kaushik (Expert)

20 September 2013 well, though there is no explicit bar.
it results in a conflict of interest.

The guidance note on Independence:

3.4.15 A statutory auditor of a company cannot also be its internal auditor, as it will not be possible for him to give independent and objective report issued under sub-Section 4A of Section 227 of the Companies Act, 1956 read with the Companies (Auditors' Report) Order, 2003.

so you may argue that being internal auditor of subsidiary doesnt flout the above. But the guidance note also states that

4.2 If the opinion of chartered accountant is to command respect and the confidence of the public, it is essential that they must ensure their independence to assure the public as regards the faith and confidence that could be reposed on them. The Chartered Accountant should ensure his independence in all assurance services including concurrent audit, tax audit and internal audit. The chartered accountant should make it certain that his independence is not jeopardized. Where he feels that his independence is jeopardized, he should refrain from accepting the assignment.

So in general you should refrain from such arrangements.

To answer your second question. No internal auditor may not be an employee.

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