Page 416 - CA Final PARAM Digital Book.

However, public conscience is expected to be ahead of law and the requirement of independence
should be interpreted much more strictly. Members should thus not place themselves in position
which would either compromise or jeopardise their independence.

Part III – Case Discussion
➢ In the given case, M is the statutory auditor of S Ltd who was appointed as director in H Ltd which is
the holding company of S Ltd.

Part IV – Conclusion
➢ In view of the above, an auditor of a subsidiary cannot be a director of a holding company as it will
affect his independence.
Author’s Note
• As per Committee on Ethical Standards has decided, director of holding should not become
auditor in subsidiary company, though it is not prohibited by Company Act 2013.

• As per Sec 141(3) directors of company cannot become auditors in the same Company. But the
Companies Act 2013 didn’t disqualify directors of holding company or subsidiary company from
doing so. Hence Sec 141(3) is not referred.

First Schedule, Part I,Cl,11 --Directorship in Holding Company where Old Course—(M21M)
QNO
he is auditor in Subsidiary Case Study & Recover Consultant
714.500
TITANIUM CNO – PE.1280
M/s SS limited is a partly owned subsidiary of M/s HH limited. For the upcoming financial year, M/s DD
& Co., Chartered Accountants, were appointed as the statutory auditors of SS limited. The CEO of the
holding company was impressed with the knowledge and experience of Mr. D, one of the partners of the
firm and hence, he offered Mr. D to take up the position of Director (not MD/ whole time director) of

HH limited. At the same time, Mr. D’s friend approaches him with an assignment to act as a Recovery
Consultant for a bank. Mr. D is now confused whether to accept or reject the offers. He approaches
you and seeks your advice on the same. Advise what Mr. D about what he can do with the offers with
reference to the Chartered Accountants Act, 1949 and Schedules thereto
Answer As per Clause (11) of Part I of First Schedule of Chartered Accountants Act, 1949, a Chartered
Accountant in practice is deemed to be guilty of professional misconduct if he engages in any business
or occupation other than the profession of Chartered Accountant unless permitted by the Council so
to engage.

Provided nothing contained herein shall disentitle a chartered accountant from being a director of a
company (not being MD or whole-time director) unless he or his partners is interested in such company
as auditor.

The Ethical Standards Board (ESB) noted that Public conscience is expected to be ahead of law.
Members, therefore, are expected to interpret the requirement as regards independence much more
strictly than what the law requires and should not place themselves in positions which would either
compromise or jeopardise their independence. In the view of the above, the Board, via a clarification,
decided that the auditor of a Subsidiary company cannot be a Director of its Holding company, as it
will affect the independence of the auditor.

However, the Council has granted general permission to the members to engage in certain specific
occupation. In respect of all other occupations specific permission of the Institute is necessary. ‘acting
as Recovery Consultant in the banking sector’ is covered under general permission.

In the given situation, M/s SS limited is a partly owned subsidiary of M/s HH limited. For the upcoming
financial year, M/s DD & Co., Chartered Accountants, were appointed as the statutory auditors of SS
limited. The CEO of the holding company was impressed with the knowledge and experience of Mr. D,
one of the partners of the firm and hence, he offered Mr. D to take up the position of Director (not
MD/ whole-time director) of HH limited. Further, Mr. D’s friend approached him for an assignment for
acting as a Recovery Consultant for a bank.

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