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Microlesson · 5-min read

Can Statutory Auditor be Appointed as Internal / Cost Auditor

# Can Statutory Auditor be Appointed as Internal Auditor or Cost Auditor?

## Statutory Auditor as Internal Auditor

Answer: NO.

  • Section 144 specifically prohibits the statutory auditor from rendering internal audit services to the company, its holding or subsidiary.
  • Therefore, statutory auditor cannot be appointed as internal auditor.

## Statutory Auditor as Cost Auditor

Answer: NO.

  • Section 148(3) read with proviso: 'No person appointed under section 139 as an auditor of the company shall be appointed for conducting the audit of cost records.'
  • Hence, a statutory (financial) auditor of the company cannot simultaneously act as Cost Auditor of the same company.

## Reasoning

The rationale behind both prohibitions is to maintain independence of the auditor. If the same person carries out the original work (book-keeping, internal audit, cost records) and then audits it, self-review threat arises and the audit loses its objectivity.

## Quick Recap Table

RoleStatutory Auditor Eligible?Statutory Provision
Internal AuditorNoSection 144(b)
Cost AuditorNoProviso to Section 148(3)
Tax Auditor (u/s 44AB IT Act)Yes (no bar in Cos. Act)
Secretarial AuditorNo (must be PCS, not CA)Section 204

Worked example

### Example 1

Q. M/s ABC & Co., statutory auditors of XYZ Ltd, are also approached to act as cost auditor of XYZ Ltd. Advise.

A. They cannot accept the cost audit assignment. Proviso to Section 148(3) bars a person appointed u/s 139 as auditor from being the cost auditor of the same company. The firm must decline.

⚠️ Common exam mistakes

  • Confusing the bar — students sometimes think it is in Section 144; for cost auditor, the bar is specifically in proviso to Section 148(3).
  • Forgetting that Tax Audit u/s 44AB is NOT barred by the Companies Act, hence permitted (subject to ICAI ceiling).
  • Assuming the bar extends to holding/subsidiary — for cost audit, bar is only on the same company.
Bare-Act text Section 144 read with proviso to Section 148(3) · Companies Act, 2013 · click to expand
Proviso to Section 148(3): Provided that no person appointed under section 139 as an auditor of the company shall be appointed for conducting the audit of cost records.
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