3.          CODE OF CONDUCT

3.1       Query

Whether statutory auditors of a nationalised bank can also be appointed as its tax consultants..

1.The querists are the statutory auditors of an associate bank of a nationalised bank. The bank approached the querists for retaining their services as tax consultants. When the matter was referred by the bank to higher authorities, they pointed out that the appointment of statutory auditors as tax consultants would amount to conferment of an office of profit which may not be permitted by the code of ethics of the Institute of Chartered Accountants of India.

2.In this context, advice of the Expert Advisory Committee has been sought whether the statutory auditors of a bank can be appointed as its tax consultants.

 Opinion                                                                                                                August 18, 1983

1.The Committee notes that the Institute of Chartered Accountants of India in its publication ‘Code of Conduct’ (p. 47, 1980 edition) has expressed the view that “………. the auditor may prepare or assist in the preparation of the accounts of a company before proceeding to audit them, agree to provide financial advice or to settle the tax liability without impairing the independence in any way. This is because the last mentioned functions are to some extent complementary in character to the main function of the auditor. As such, any fees received by him for such other work cannot be said to have interfered with his independence.”

2.The Committee further notes that clause 4B of Part II of Schedule VI to the Companies Act, 1956 requires that the “Profit and loss account shall further contain or give by way of a note detailed information in regard to amounts paid to the auditor, whether as fees, expenses or otherwise for services rendered-

a)            as auditor

b)            as advisor, or in any other capacity, in respect of:

            i)          taxation matters;

                        ………………..”

3.In this context, the Committee also notes that the Institute of Chartered Accountants of India has stated in its ‘Statement on Payments to Auditors for Other Services’ (para 2 of Page 1) that the payments for other services “represent perfectly legitimate payments for services rendered by the auditor of a company… The very fact that the law requires specific disclosure of the payment for the other services shows that parliament did not consider anything prima-face wrong with them.”  Thus, it is possible for the auditor of a company to render such other services.

4.The position stated above equally applies to the statutory auditor of a bank. The Committee is therefore of the opinion that a statutory auditor of a bank can render professional service to the bank in matters relating to the taxation of the bank.

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