Can Internal Audit report be signed by Private limited Compa

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CA Siddharth (Querist)
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20 October 2010 Hello Friends,

WE as a firm has conducted internal audit of one our our private limited client.

Now since we are the tax auditor, we cannot be the internal auditors of the same organisation.

we have one of our sister concern which is a private limited company and does accounting and consulting work.

Now whether it is possible to issue the internal audit report from this sister concern which is a private limited company.

Reference to the above question in the form section / rule / act etc would be highly appreciated to sustantiate the answer.

Thanks in advance and kindly reply early as we are very short of time to issue the report.

Thrissurkkaran Ishtan

Thrissurkkaran Ishtan (Expert)
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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

Hope this helps

Abhay Gujarathi

Abhay Gujarathi (Expert)
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22 October 2010 Did not cleary understand the Reply... Expert this is unique query, Kindly resolved.. I am also Confused

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Thrissurkkaran Ishtan

Thrissurkkaran Ishtan (Expert)
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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.

Thrissurkkaran Ishtan

Thrissurkkaran Ishtan (Expert)
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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.

Thrissurkkaran Ishtan

Thrissurkkaran Ishtan (Expert)
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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.

Please revert if required.