Office of place of Profit

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sayeed (Querist)
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23 December 2008 Mr A Chartered Accountant is a director of a company named xyz ltd and he also partner of AB& CO Chartered Accountants.
AB & CO appointed as a nternal auditor of xyz limited.
In the above the Sec 314 will apply or not??
Exemption given U/s 314 to work as professional capacity can enjoy by AB & CO or exemption is only applicable to individul capavity?

pls clear my doubt??

CS Arpita Rajpurohit

CS Arpita Rajpurohit (Expert)
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23 December 2008 The prohibition under sub-sections (1) and (1-B) is not applicable to the remuneration/compensation given to the concerned persons for services of a professional nature rendered by them to the company in their professional capacity, such as advocate, chartered accountant, solicitor (Harper Ticket Issuing and Recording Machines Ltd., Re, (1912) WN 263 : 29 TLR 63), doctor, architect, engineer and others. The prohibition will however apply in case such professional services are rendered by the concerned persons to the company on regular retainership basis binding themselves to render such services as and when called upon by the company. Liberator Bldg. Society, Re, (1894) 71 LT 406.

Appointment of relatives of directors as statutory auditors:
Department's Clarification.-Quite a few cases of appointment of relatives of directors as statutory auditors of the company managed by such directors have come to the notice of the Department. It is conceded that there is no legal bar to such appointments as long as the provisions of section 314 and those relating to appointment of auditor are complied with, the appointments are to be regarded as legally valid. It is however, felt that it would be in the larger interests of the profession, if the auditors were to avoid any conflict between their duties as statutory auditors of companies and their personal interest in the management of such companies. As a matter of general principle, a Chartered Accountant, who was a near relation of a director of a company or a partner of a firm in which such director is a partner, should refrain from accepting the appointment of auditor of the company. As regards other categories or relatives of directors, a healthy convention should be established by which such persons should not audit or sign the balance-sheets of companies managed by their relatives or associates, even though the firms of which they were partners happened to be the auditors of these companies. (Extract from the Seventh Annual Report on the Working and Administration of the Companies Act, 1956-Year ended March 31, 1963.)

as regards internal audit is concerned...there is no bar as such.