Under Section 144 of the Companies Act, 2013, an auditor’s role is kept independent so that financial reporting remains trustworthy. In this guide, we will understand what services an auditor is not allowed to provide, why this rule exists, and what it means in real business situations in India.
Why There Are Restrictions on Auditors
Let me start with a common real-life situation.
A company owner often feels comfortable working with the same professional for many financial tasks — accounting, advice, system setup, and audit. It feels efficient. Less explaining, less paperwork.
But here’s the problem.
If an auditor helps create financial records and later checks those same records, they would essentially be reviewing their own work. That reduces independence and can affect trust.
So the law draws a clear boundary:
The auditor’s main job is checking and verifying, not creating or managing financial decisions.
This separation helps shareholders, investors, banks, and regulators rely on audit reports.
What Section 144 Basically Says
An auditor can provide additional services to a company only if the Board of Directors or Audit Committee approves them.
However, certain types of services are completely off-limits. Even if the company wants it, the auditor cannot perform those services.
These restrictions apply not only to the company itself but also to:
- its holding company, and
- its subsidiary companies.
In practice, this means independence must be maintained across the entire corporate group.
Services an Auditor Is Not Allowed to Provide
Let’s understand each prohibited service.
1. Accounting and Bookkeeping Services
This means maintaining financial records, preparing accounts, or recording daily transactions.
If the auditor prepares the books and later audits them, the checking process loses meaning.
Example: If a company pays a Chartered Accountant ₹50,000 per month to maintain its accounts, that same person cannot act as the statutory auditor.
2. Internal Audit
Internal audit is an ongoing review of company processes and controls during the year.
Since statutory audit already evaluates company records independently, doing both roles would create a conflict.
Think of it like being both the referee and one of the players in the same match.
3. Designing or Implementing Financial Information Systems
This includes setting up accounting software or financial reporting systems.
If the auditor designs the system and later audits outputs generated by that system, they would indirectly be checking their own design work.
4. Actuarial Services
Actuarial work involves calculating financial risks using statistical methods — commonly used in insurance or employee benefit calculations.
Because these calculations directly affect financial statements, auditors must stay independent from preparing them.
5. Investment Advisory and Banking Services
Auditors cannot advise the company where to invest its money. Why? Because investment decisions affect profits and financial reporting. Independence must remain intact.
Activities like raising capital, mergers, restructuring, or financial deal arrangements fall under investment banking.
An auditor involved in such decisions could lose objectivity while auditing the results of those transactions.
6. Outsourced Financial Services
This refers to managing financial operations on behalf of the company — such as payroll processing, financial management, or similar outsourced functions.
Again, the person managing finances cannot independently verify them later.
7. Management Services
Auditors cannot participate in decision-making or management activities.
Their role is observation and verification — not running the business.
The law allows the government to add more restricted services in the future if required.
As of now, no additional services have been officially added under this category.
What “Directly or Indirectly” Means — A Point That Confuses Many Beginners
This part is very important in practice.
Companies earlier tried to bypass rules by hiring related entities connected to the auditor. So the law widened the meaning.
Even if the auditor does not personally provide the service, it is still treated as prohibited if it is done through connected persons or entities.
If the Auditor Is an Individual
The restriction also applies if services are provided through:
- the auditor themselves,
- their relatives,
- people closely connected with them,
- entities where they have strong influence or control,
- organisations using their brand or name.
In simple terms: the auditor cannot indirectly do the work through someone linked to them.
If the Auditor Is a Firm
The restriction covers services provided through:
- the audit firm,
- any partner,
- parent or subsidiary entities,
- associate entities,
- organisations influenced or controlled by partners,
- entities using the firm’s brand name.
So creating a separate related firm to provide prohibited services is also not allowed.
Important Practical Rule About Cost Audit
There is another related safeguard.
If a person or firm is appointed as the company’s statutory auditor, they cannot be appointed to audit the company’s cost records — and vice versa.
This again ensures separation of responsibilities and unbiased verification.
Why This Rule Matters
Many beginners think audit rules are only technical compliance matters. But in reality, they protect financial credibility.
When an auditor stays independent:
- financial statements become more reliable,
- investors gain confidence,
- fraud risks reduce,
- companies build long-term trust.
From practical experience, confusion usually arises because businesses see auditors as “financial experts for everything.” But legally, their role is very specific — independent checking, not financial execution.
Conclusion
Section 144 of the Companies Act creates a clear boundary around what auditors can and cannot do. The main idea is simple: the person verifying financial truth should not be involved in creating or managing it.
For Indian businesses, this rule strengthens transparency. For learners, it highlights an important principle — independence is the backbone of auditing.
