25 November 2013
The firm has done internal audit for half year (2013-14).Now the client wants to appoint the firm as statutory auditor. Can a firm after resigning as an internal auditor can be appointed as statutory auditor for the FY 2013-14.Kindly provide support for the answer. Case law or provisions governing the same.
25 November 2013
I think firm can but not for the financial year 2013-14 as for this year internal audit is done by same firm. 2014-15 onwards it can be appointed as statutory auditor. The condition is a firm can not act in capacity of both internal auditor and statutory auditor simultaneously.
Internal auditor cannot be appointed as statutory auditor(s)
Circular No. 29 of 1976, dated 27-8-1976 addressed to all Chambers of Commerce states that the internal auditor is appointed by the management and hence is in the position of an employee, whereas the statutory auditor is appointed by the company in accordance with the provisions of section 224 and the auditor is required to perform the duties enjoined on him under section 227 of the said Act and the Rules/Orders issued thereunder. In this connection, refer to para 4(vi) of the Manufacturing and Other Companies (Auditor's Report) Order, 1975 (Now, 1988) in CSR No. 533(E), dated 7-11-1975 notified by Department in accordance with which the statutory auditor has to include in his report under section 227, whether there is adequate internal control procedure commensurate with the size of the company and the nature or its business for the purchase of stores, raw materials including components, plant and machinery, equipment and other assets and in the case of companies (having Rs. 25 lakhs or more paid-up share capital) whether there is any internal audit system commensurate with its size and nature of business. It is, therefore, obvious that if the statutory auditor of the company is also the internal auditor, it will not be possible for him to give an independent and objective report under section 227 read with the order under sub-section (4A) thereof. As such, in the opinion of the Department, a statutory auditor of a company cannot also be its internal auditor.
CAclubindia
