Let's say an auditor has purchased goods worth Rs. 6 lakhs from the company he is auditing. And the…
Let's say an auditor has purchased goods worth Rs. 6 lakhs from the company he is auditing. And the company has allowed him one month credit, which is the normal business procedure and allowed to all known customers.
Can he keep auditing the books of that company after he has made the purchase?
This fact of Purchase of Goods on Credit by the Auditor is covered under Section 141(3)(d)(ii) of the Companies Act, 2013.
What this section basically says is that if an auditor becomes indebted to the client's business for a sum of Rs. 5 lakhs or more, he shall be disqualified to act as the auditor of that company after he becomes indebted.
It doesn't matter whether the credit period is availed to other customers or not. What matters is that the auditor has become indebted to his client's business and thus can not keep auditing the books of accounts of that company.
