Prohibition of Non-audit services : Companies Act 2013

Prohibition of Non-audit services

According to section 144 of Companies act 2013, there is a prohibition on auditor rendering specified non-audit services to the auditee company/ it’s subsidiary/holding.

Existing companies to get a transition period till the end of the financial year to comply with the new requirements. Auditors have traditionally provided to their audit clients a range of non-audit services that are consistent with their skills and expertise. While some non – audit services may create threat to the independence of the auditor, the non-audit services in general may also benefit the Company. However, driven by the perceived independence threats, the list of prohibited services has been drastically extended. The prohibition applies whether services are provided directly or indirectly, i.e. either by the audit firm or through its partners or through its parent or subsidiary or associate entity or through any other entity in which the firm or any partner has significant influence or control or whose name/trademark/ brand is used by the firm or its partners. Even the permitted services can be rendered only with the approval of the Board or Audit Committee.

Prohibition of Non-audit services  : punishments for Company

In case of non-compliance of section 144, section 147 takes the command which states that, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees, or with both.

Prohibition of Non-audit services  : punishments for Auditors

Where, in case of audit of a company being conducted by an audit firm, it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal as provided in this Act or in any other law for the time being in force, for such act shall be of the partner or partners concerned of the audit firm and of the firm jointly and severally.

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