Prohibited Services explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Every item on the list would require the auditor to examine work the firm itself produced, or to profit from advice the accounts reflect.
The list
As per Section 144 of the CA, 2013 an auditor shall not provide any of the following services:
- Accounting and Book keeping services
- Internal Audit
- Design and implementation of any financial information system
- Actuarial services
- Investment advisory services
- Investment Banking services
- Rendering of outsourced financial services
- Management services
The eight items fall into two groups, and identifying which is which explains why each is there.
Self-review. Items 1, 2, 3 and 7 all involve the firm producing something the audit would then examine. If the auditor kept the books, the audit is an examination of the firm's own work. If the auditor built the financial information system, the audit tests controls the firm designed. If the auditor performed the internal audit, the statutory audit relies on internal audit work the same firm did.
An auditor in that position is not independent in fact, whatever their intentions — no professional readily reports that their own work was defective.
Financial interest and management involvement. Items 4, 5, 6 and 8 create a stake in the client's decisions. Actuarial services produce assumptions that flow into the accounts as liabilities. Investment advisory and investment banking generate fees tied to transactions the accounts then report. Management services put the firm inside the decision-making it must later assess.
The same logic explains the cost audit bar: the person appointed under Section 139 of the CA, 2013 as an auditor of the company shall not be appointed for conducting the audit of cost records. One firm should not audit both sets of records and reconcile its own findings.
Note that these prohibited services sit alongside the audit committee's own obligation to maintain a set of guidelines in respect of non-audit services. The section closes eight doors; the committee's policy governs everything still open.
The audit ceiling
As per Section 141(3)(g) of the CA, 2013 an auditor cannot undertake audit of more than twenty companies.
In case of private Companies, while calculating the limit of 20, one person companies, dormant companies, small companies and private companies having paid up share capital less than one hundred crore rupees shall be excluded.
| Counted | Excluded |
|---|---|
| Listed companies | One person companies |
| Public companies | Dormant companies |
| Private companies with paid-up capital of INR 100 crore or more | Small companies |
| Private companies below INR 100 crore of paid-up capital |
The exclusions are generous, and deliberately so. The ceiling exists to ensure an auditor can devote adequate time to each engagement; a dormant company or a small private company requires far less, and counting them would restrict practice without protecting anyone.
Attendance at general meetings
As per Section 146, an auditor either by himself or through his representative, who is qualified to be an Auditor, shall attend the general meeting, unless exempted by the Company. Also, the authorised representative shall also be qualified to be an auditor.
The double qualification requirement matters. A firm cannot send an administrator; the representative must themselves be qualified to be an auditor, so that any question from a member can be answered by someone competent to answer it.
Common mistakes
- Providing bookkeeping or systems implementation to an audit client through an affiliate.
- Accepting the cost audit of a company the firm already audits.
- Counting small and dormant private companies towards the twenty-company limit.
- Sending an unqualified representative to a general meeting.