A Member has sought the Institute’s view as to whether the Auditor of a Subsidiary Company can be a Director of its Holding Company.
The Committee on Ethical Standards (CES) a non-standing Committee of the Institute, has examined the issue in detail. The Committee noted that in terms of Clause (11) of Part I of the First Schedule to the Chartered Accountants Act, 1949 a Chartered Accountant in practice can not engage (unless permitted by the Council so to engage) in any business or occupation other that the profession of Chartered Accountant but he can be a director of a Company (not being a managing director or whole time director) wherein he or any of his partners is not interested in such Company as an auditor. The Committee further noted that Public conscience is expected to be ahead of the 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 view of the above the Committee has decided that the auditor of a Subsidiary Company can’t be a Director of its Holding Company, as it will affect the independence of an auditor.