ICAI Reprimands CA for Accepting Auditor Appointment Contrary to Companies Act

Key Takeaways:

1. Appointment Contravention: The case centers on the Respondent’s acceptance of an auditor appointment and completion of the audit for the fiscal year 2014-2015 without complying with the communication and procedural requirements, despite the Complainant’s prior appointment as the Statutory auditors of the company.

2. Allegations and Defense: The Respondent’s defense emphasized the delay in conducting an Extraordinary General Meeting (EGM) of the company and urged the Board to consider a liberal view in pronouncing the punishment order. However, the Board’s findings underscored the duty of the incoming auditor to ensure the propriety of the appointment, leading to the ruling of “Professional Misconduct.”

3. Board’s Verdict: The Two-Member Bench of the Board held the Respondent guilty of “Professional Misconduct” falling within the meaning of Item (9) of Part-I of the First Schedule to the Chartered Accountants Act, 1949, emphasizing the duty of the incoming auditor to ascertain the propriety of the appointment.

Synopsis:

The case involving the reprimand of Chartered Accountant (CA), Ashish Anand Pathak, by the Institute of Chartered Accountants of India (ICAI) sheds light on professional misconduct related to the acceptance of an auditor appointment without complying with the requirements under the Companies Act. The dispute arose when the Company appointed the Complainant’s Firm as the auditors for the fiscal year 2014-2015, only for the Complainant to discover that the Respondent had accepted the assignment and completed the audit without adhering to the necessary communication and procedural protocols.

The crux of the matter lies in the alleged contravention of the appointment of the Statutory auditors of the company, as the Respondent accepted the audit assignment and completed the audit for the fiscal year 2014-15 without communicating with the Complainant, who held the office until the conclusion of the fifth Annual General Meeting (AGM) of the Company. This discrepancy led to a letter being addressed to the Respondent on 2nd November 2017, highlighting the failure to adhere to the prescribed procedures.

In response, the Respondent submitted that charging an auditor for professional misconduct merely due to the delay in conducting an Extraordinary General Meeting (EGM) of a company was preposterous and inappropriate. Additionally, the Respondent emphasized that due care was taken for the purpose of acceptance as the first auditor of the Company – SRL Hospital Private Limited.

The Two-Member Bench of the Board, comprising CA. Rajendra Kumar P as the Presiding Officer and Dolly Chakrabarty (IAAS, retd.) as the Government Nominee, observed that the duty of the incoming auditor is to ascertain the propriety of the appointment before acceptance, a duty that was clearly missing in this instance. Consequently, the Board held the Respondent guilty of “Professional Misconduct” falling within the meaning of Item (9) of Part-I of the First Schedule to the Chartered Accountants Act, 1949.

This case underscores the importance of adhering to the prescribed procedures and communication protocols in the context of auditor appointments under the Companies Act. It also highlights the professional responsibilities of auditors and the implications of failing to fulfill these responsibilities. The ICAI’s ruling serves as a reminder of the ethical and professional standards expected from Chartered Accountants, emphasizing the consequences of conduct deemed unbecoming of the profession.

FAQ

Q1: What was the basis for the ICAI’s reprimand of the CA in this case?

A1: The reprimand was based on the Respondent’s acceptance of an auditor appointment and completion of the audit for the fiscal year 2014-2015 without complying with the communication and procedural requirements, contravening the prescribed procedures under the Companies Act.

Q2: What was the Respondent’s defense in this case?

A2: The Respondent’s defense highlighted the delay in conducting an Extraordinary General Meeting (EGM) of the company and urged the Board to consider a liberal view in pronouncing the punishment order, emphasizing the due care taken for the purpose of acceptance as the first auditor of the company.

Q3: What was the Board’s ruling in this case?

A3: The Two-Member Bench of the Board held the Respondent guilty of “Professional Misconduct” falling within the meaning of Item (9) of Part-I of the First Schedule to the Chartered Accountants Act, 1949, emphasizing the duty of the incoming auditor to ascertain the propriety of the appointment.