21 October 2010
In view of Council's decision (check this link http://www.icai.org/post.html?post_id=4157 ) the internal auditor and statutory audit cannot be the same.
So the question (in the true spirit of this decision) will be to what extend this sister company is related to your firm and is the work done by the same CAs? As long as this can be kept independent, I dont see any issue in signing.
Please also check out this link of expert opinion. http://www.icai.org/eac/eacfinal/vol8/2/1.htm
23 October 2010
My apologies if my answer did not meet your expectation. Let me elaborate my opinion on this issue.
ICAI council has announced that an internal auditor cannot be a tax auditor (mistyped earlier as statutory auditor). The reason for this to my understanding is that internal auditor is considered to be an employee of the company whereas tax auditor (like statutory auditor) has an independent capacity.
The second link I gave explains the above rationale that is why a statutory auditor (like a tax auditor) cannot be an internal auditor.
23 October 2010
Keeping the rationale in mind, if they are not the same entity (the questioner says it is another limited company) there is no problem in signing. The spirit of the position has to be, however, clearly understood. Imagine the individual CA who did the tax audit and internal audit are the same. The position of independence can be brought to question.
So my opinion is as long as there is a strong wall between these 2 there are no issues in signing.
23 October 2010
Please do note that there many countries which allows internal auditor and statutory (external ) auditor to be same. For e.g. Britain.
KPMG recently got the contract for external and internal auditor as Rentokil in Britain.
The rationale behind allowing this is that it is better to be internal and external auditor at the same time, as internal audit gives an in depth and more detailed knowledge about the client which helps the external auditor to perform his duty better. So the independence takes a back seat there when it comes to quality of the audit opinion.
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