CA guilty of Misconduct for Accepting Audit without taking NOC from previous Auditor

The Institute of Chartered Accountants of India (ICAI) in the matter of CA. Ashok Kumar Somani Vs. CA. Nilesh Jain has held CA guilty of Misconduct for Accepting an Audit without taking NOC from the previous Auditor.

The Complainant was appointed as Statutory auditor/Tax auditor of the following firms for FY 2017-18 and reappointed for 2018-19 and onwards:

a. M/s Sanwaliya Tractor Agency

b. M/s Sanwaliya filing Station

c. M/s Sanwaliya Motors Private Limited

The Complainant has claimed that he completed the audits for Financial Year 2018-19 and found some serious irregularities in the books of accounts of all the above firms and informed the firm to rectify the mistakes in the books of accounts so that the audits could be finalized. The Complainant made repeated phone calls to the firm; however, the firm did not reply.

Thereafter, the Complainant wrote an email dated 22.10.2019 to the firm regarding corrections and explanations and informed them he will issue a qualified report on 31.10.2019 as this was the last date to submit the report.

As regard the charge alleged that the Respondent accepted appointment as the Statutory Auditor/Tax auditor of all the above firms/Companies for the F.Y. 2018-19 without first communicating in writing with the previous auditor i.e., the Complainant, the Board took into view the requirement of Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949 which provides as under:

“A Chartered Accountant in practice shall be deemed to be guilty of Professional Misconduct if he-

Accepts a position as auditor previously held by another chartered accountant or a certified auditor who has been issued certificate under the Restricted Certificate Rules, 1932 without first communicating with him in writing.”

The Board observed that there are two essential requirements under Item (8) of Part I of the First Schedule to The Chartered Accountant Act, 1949 which are as follows:

i. The communication should be prior to the acceptance of the appointment as auditor.

ii. The communication should be In writing.

In the instant case, the Board noted that the Respondent firm was appointed as the auditor of M/s Sanwaliya Filling Station vide appointment letter dated 29th October 2019 for the F.Y. 2018-19.

On consideration of the mentioned emails, the Board observed that it is clearly evident that the Complainant objected to the appointment of the Respondent as the Auditor due to certain irregularities. However, the Respondent chose not to consider the same and moved ahead and conducted the audit.

On consideration of the aforesaid emails, the Board observed that it is clearly evident that the Complainant objected to the appointment of the Respondent as the Auditor due to certain irregularities. However, the Respondent chose not to consider the same and moved ahead and conducted the audit.

Thus, in view of the above, the Board observed that it is clear that though the Respondent had communicated with the Complainant prior to the acceptance of his appointment as auditor, the Complainant clearly through the return e-mail informed him to not to accept audit assignment due to various flaws in accounts and so on. In spite of this fact, the Respondent went ahead, accepted the audit assignment for which he was appointed on 29th October 2019 and verified and filed the report on 3pt October 2019 which in itself is a point towards the quality of the audit conducted by him. The Board was of the view that the intent behind seeking no- objection of the previous auditor is to safeguard the interest of the incoming auditor and the independence of the existing auditor which in the instant case had been clearly violated by the act of the Respondent. Hence, the Board held the Respondent Guilty In respect of the charge alleged.

CONCLUSION:

Thus, in conclusion, in the considered opinion of the Board, the Respondent is GUILTY of Professional Misconduct falling within the meaning of Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949.

For Official Order Download PDF Given Below: