Think about this: your doctor shouldn't also be selling you the medicines he prescribes — that's a conflict of interest. Section 144 works on the exact same logic. When a statutory auditor is checking a company's books, they cannot simultaneously also be the one preparing those books, advising on investments, or running the internal audit. The independence of the auditor is the entire foundation of the audit's credibility.
So here's the rule: your statutory auditor (appointed under the Companies Act 2013) can offer non-audit services to the same company — but only those services approved by the Board of Directors or the Audit Committee. However, there is a hard negative list of services that are completely banned, no matter who approves them. These banned services are: (a) accounting and bookkeeping, (b) internal audit, (c) design and implementation of any financial information system, (d) actuarial services, (e) investment advisory services, (f) investment banking services, (g) outsourced financial services, (h) management services, and (i) any other services as prescribed. The ban applies whether the auditor renders these services directly or indirectly — and the Act is very specific here. For an individual auditor, 'indirectly' covers services given through a relative, associated person, or any entity where the auditor has significant influence. For an audit firm, it covers services through any partner, or a parent/subsidiary/associate entity of the firm.
One more important point: the ban also extends to the holding company and subsidiary companies of the client — not just the company that appointed the auditor. This is frequently tested! Also note the transitional provision: if an auditor was already providing any banned service before the Act came into force, they had to stop by the end of the first financial year after commencement. This was a one-time grace period — it is no longer available. This section is asked frequently as a 4-mark or 5-mark question in the audit paper, often as a list-the-prohibited-services question or a scenario-based ethics question.
📊 Worked example
Example 1 — Identify the Violation
M/s Sharp & Co. is the statutory auditor of Pinnacle Textiles Ltd. (a listed company). The CFO of Pinnacle approaches Sharp & Co. and requests them to also handle the company's internal audit for ₹8,00,000 per annum. The Audit Committee has approved this arrangement. Is this permissible?
Working:
- Step 1: Is the service on the negative list under Section 144? → Internal audit is explicitly listed at point (b).
- Step 2: Does Audit Committee approval override the ban? → No. The Audit Committee can only approve services that are not on the negative list. For prohibited services, no approval — Board or Audit Committee — makes it valid.
- Step 3: The ₹8,00,000 fee and Audit Committee approval are both irrelevant distractors.
Answer: This arrangement is NOT permissible. Sharp & Co. would be in violation of Section 144 of the Companies Act 2013.
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Example 2 — Indirect Rendering
Mr. Verma is the statutory auditor of Asha Pharma Pvt. Ltd. Mr. Verma's brother runs a firm, Verma Fintech Solutions, which provides investment advisory services to Asha Pharma for ₹3,50,000 per year. Mr. Verma claims he has nothing to do with his brother's firm. Is Section 144 violated?
Working:
- Step 1: Investment advisory services → on the negative list at point (e). ✓
- Step 2: Is this 'indirect' rendering? The Explanation to Section 144 clearly covers services rendered through a relative of the auditor (when the auditor is an individual).
- Step 3: Mr. Verma's brother is a relative. Verma Fintech Solutions is connected to Mr. Verma through his relative.
- Step 4: The ₹3,50,000 fee is immaterial to the analysis.
Answer: Yes, Section 144 is violated. The 'indirectly' clause captures exactly this situation. Mr. Verma cannot claim distance from his brother's firm.
⚠️ Common exam mistakes
- Students think Board approval makes any non-audit service permissible. Wrong — Board/Audit Committee approval only works for services outside the negative list. The 9 prohibited categories are banned regardless of any approval.
- Students forget that the ban covers holding and subsidiary companies too. If M/s ABC is auditor of the parent company, they cannot provide banned services to the subsidiary either — not just to the parent.
- Students memorise only 5-6 items from the negative list and miss 'actuarial services' or 'outsourced financial services.' For the exam, memorise all 8 specific items (a) to (h) — the examiner loves asking you to list them.
- Students ignore the 'indirectly' explanation. A scenario where the auditor's spouse's firm or a partner's associated entity provides banned services is still a Section 144 violation. Don't fall for the 'he personally didn't do it' argument.
- Students confuse Section 144 with Section 141 (disqualifications). Section 141 decides who can be appointed; Section 144 restricts what an already-appointed auditor can do. Keep these separate in your answers.
📖 Bare Act text — Section 144, Companies Act 2013
(click to expand)
An auditor appointed under this Act shall provide to the company only such other services as are approved by the Board of Directors or the audit committee, as the case may be, but which shall not include any of the following services (whether such services are 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: Provided that an auditor or audit firm who or which has been performing any non-audit services on or before the commencement of this Act shall comply with the provisions of this section before the closure of the first financial year after the date of such commencement. Explanation.—For the purposes of this sub-section, the term "directly or indirectly" shall include rendering of services by the auditor,—(i) in case of auditor being an individual, either himself or through his relative or any other person connected or associated with such individual or through any other entity, whatsoever, in which such individual has significant influence or control, or whose name or trade mark or brand is used by such individual; (ii) in case of auditor being a firm, either itself or through any of its partners or through its parent, subsidiary or associate entity or through any other entity, whatsoever, in which the firm or any partner of the firm has significant influence or control, or whose name or trade mark or brand is used by the firm or any of its partners.
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