Q.Rina is an employee in the accounts department of Sunrise Traders Pvt. Ltd. At the company's Annual General Meeting, a shareholder proposes that Rina — who is highly experienced and has prepared the company's accounts for the past three years — be appointed as the company's statutory auditor, since "she knows the accounts better than anyone else." As a student of auditing, explain whether this proposal is valid, and why. (This is supplementary practice content — the real Semester I paper for this unit is 100% MCQ; Case Problems here build the deeper apply-the-rule reasoning the MCQ format cannot test.)

Knowing the accounts intimately is precisely why Rina cannot be the auditor — an employee who prepared the accounts cannot also be the one independently examining them.

This proposal cannot be accepted, for a reason that goes to the very heart of what an audit is meant to achieve.

As Section i explains, a company's auditor must be independent of the company being audited — the whole value of an audit's opinion rests on the fact that the person forming that opinion has no personal stake in, or influence over, the figures being examined. For this reason, the law expressly disqualifies an officer or employee of the company (and of its associate/subsidiary companies) from being appointed as its auditor.

Rina, as a current employee in the company's accounts department who has herself prepared the accounts for the past three years, falls squarely within this disqualified category. In fact, her closeness to the accounts — the very reason the shareholder proposes her — is exactly why she cannot be the auditor: she would effectively be reviewing her own work, with an employment relationship (and quite possibly a personal stake in how favourably that work is judged) that makes genuine independence impossible. This also connects directly back to Section g's central theme: accounting (which Rina has been doing) and auditing (an independent check on that accounting) must be performed by two different, unconnect …

A common wrong instinct is to think that more familiarity with the accounts makes someone a BETTER candidate for auditor — in fact, the opposite is true in law: an existing connection to the accounts (as the preparer, an employee, or someone with a financ …