Wednesday, December 17, 2008

Companies Bill, 2008: No advisory services by auditors

One of the important measures taken in the Companies Bill, 2008 is to prevent Chartered Accountants from offering actuarial, advisory and management services to companies which have engaged them as statutory auditors. Section 127 of the Bill provides:

An auditor appointed under this Act shall provide 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, namely:-

(a) accounting or 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; and

(h) management services.


The Economic Times carries a report on this change, which would be welcome from the perspective of accountability in company audits. The report is linked here. The following is an extract:

The proposal forms part of the Companies Bill 2008, currently pending before the Lok Sabha. The move is expected to usher in greater independence in the audit function and infuse greater confidence in the minds of investors on the credibility of financial statements. At present, the statutory auditors are barred from providing accounting and internal audit services for their clients, but are allowed to deliver consultancy and advisory services.

The initiative assumes significance in the wake of a slowdown in the economy where companies may hire consultancy services from their statutory auditors who may turn a blind eye to discrepancies in financial statements...

(For previous discussions on the Companies Bill, 2008 on this blog, see this link)

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