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What are Non Audit Services and Why Auditors are Debarred from it

ADMIN by ADMIN
July 5, 2022
in Business & Other News
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The prime motive of introducing the provisions under Section 144 of the Companies Act, 2013, is apparently to ensure the enhanced independence and accountability of the auditors. 

 

Guidance Note on Independence of Auditors issued by the Institute of Chartered Accountants of India (ICAI) provides valuable inputs to understand the same.

 

Independence being a subjective term is one of the most important pre requisites for any auditor before serving any organization, in line with the Code of Ethics prescribed by the ICAI.

 

Non-audit services are any professional services provided by a Chartered Accountant (audit firm) during the period of an audit engagement which are not connected to an audit or review of an institution’s financial statements.

 

Section-144 – An auditor appointed under Companies Act, 2013 shall provide to the company only those services as are approved by the Board of Directors or Audit Committee, but excluding the following services (whether rendered directly or indirectly to the company or its holding company or subsidiary company, namely:

 

(a) accounting and book keeping services;

(b) internal audit;

(c) design and implementation of any financial information system;

(d) actuarial services;

(e) investment advisory services;

(f) investment banking services;

(g) rendering of outsourced financial services;

(h) management services; and

(i) any other kind of services as may be prescribed

 

Prof N. Narayanaswamy, retired Professor of Finance, IIM Bangalore and Chairman, Technical Advisory Board, NFRA, suggests that audit firms should publish an annual report of professional activities undertaken and an external supervisory board to evaluate their audit quality. He has also suggested how small audit firms can go about the job.

Revenues from audit as well as non audit fees should be given. Non-audit fees received disproportionately higher than audit fees has been a big debate for reform the world over including India. 

 

Cases that right now come to my mind and on which I have written extensively over the last one year are the violations made by Deloitte and KPMG (BSR & Associates LLP) in this regard as statutory auditors of IL&FS for 2017-18. The appointments of both were illegal due to their provision of non-audit services. Two companies of IL&FS Group paid a total of Rs. 6.57 cr Non-audit Fees to Deloitte from 2013-14 to 2017-18. The above revenue does not include services provided by Deloitte and its affiliates to other group companies of IL&FS. 

 

Do refer to the detailed reports published, available on NFRA website, and action taken by NFRA in this regard. Only after reading these two case studies you will have a clear idea about the violations made and the quantum of fees received illegally by these two firms. Also the punishment given by NFRA.

 

To be continued…

 

Article by:

BY CA Suprio Ghatak

Chartered Accountant – by profession
Trainer, writer and speaker – by passion
ICAI Orientation and MCS faculty – since 2014
MBA faculty – since 2005

Practising from 2017 as a Partner in a leading audit firm in Kolkata. Areas of expertise: Accounts, Finance, Company Law, Current business affairs, Communication Skills and all industry related matters..
E-mail: casuprioghatak2018@gmail.com | LinkedIn: Suprio Ghatak

 

Connect with us on: LinkedIn, Telegram, Instagram, Facebook and Youtube for regular Updates.

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