Onus to Communicate with previous Auditor on incoming Auditor, Same cannot be passed on Auditee

The Board of Discipline of ICAI in the matter of CA Ashish Chhabra Vs. CA Neha Bansal has held the Chartered Accountant Guilty of Professional Misconduct on the basis of a reason that the Onus to Communicate with the previous Auditor on the incoming Auditor, same cannot be passed on Auditee.

The Complainant’s Firm has been the Statutory Auditor of M/s ROC Foods Limited (hereinafter referred to as the “Company”) for the past ten years and completed their term during the year 2017-18. Thereafter, the Respondent firm was appointed as the Statutory Auditor of the Company from the financial year 2018-19 to 2023-24 vide resolution dated 27th September 2018 to hold the Office of Auditor from the conclusion of the AGM for the year 2017-18 till the conclusion of AGM to be held in the year 2023 and the Company had filed the ADT-1 on 10th January 2019.

The Complainant alleged against the Respondent as under:

1. The Respondent accepted appointment as Statutory Auditor of the Company without first communicating in writing with the Complainant/ Complainant firm, being the previous auditor as required under the provision of Item (8) of Part I of First Schedule to the Chartered Accountants Act, 1949 read with Code of Ethics – 2009.

2. The undisputed professional fee of the Complainant’s firm was still pending for payment from the Company for the financial year 2017-18 in full and partially for the financial year 2016-17.

The Board noted that the Director (Discipline) in his Prima Facie Opinion held the Respondent prima facie Guilty of Professional Misconduct falling within the meaning of Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949 in respect of the charge specified at para 2.1 above only and the said view had been accepted by the Board. Accordingly, the conduct of the Respondent was examined in respect of the first charge I.e., Professional Misconduct falling within the meaning of Item {8) of Part I of the First Schedule to the Chartered Accountants Act, 1949 only.

As regard the charge alleged that the Respondent accepted appointment as Statutory Auditor of the Company for the FY 2018·19 without first communicating in writing with the Complainant/Complainant firm, being the previous auditor, the Board took into view the requirement of Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949 read with Code of Ethics – 2009, 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.

Further, the “Code of Ethics (2009 edition}” for the Chartered Accountants emphasis that professional courtesy alone is not the major reason for requiring a member to communicate with the existing accountant who is member of the Institute or a certified auditor. The object of the incoming auditor, in communicating with the retiring auditor, is to ascertain from him whether there are any circumstances which warrant him not to accept the appointment.

In the instant case, the Board noted that the Respondent vide her letter dated 14th November 2019 clearly admitted that they had not done any written communication with the Complainant i.e., the previous auditor of the Company as they were informed by the Company about the malafide intention of the Complainant. The Board also noted that the Respondent during the course of the hearing also admitted that she had no written communication with the Complainant prior to the acceptance of the appointment as the statutory auditor of the company for the FY 2018-19 as they were informed by the Company that they had communicated with the Complainant.

The Board further noted that the Respondent also brought on record a letter dated 14th November 2019 written by the Company and addressed to the Disciplinary Directorate wherein it was mentioned as under:

‘that the intention of the Complainant was ma/a fide as he wanted to get the auditor of his choice only, appointed in the Company for the year 2018-19 and also he was not accepting the pending fee hence, it was requested by the Company to the Respondent not to communicate with the previous auditor i.e., the Complainant’.

Also, the Company too directly sent a letter dated 13th November 2019 to the Disciplinary Directorate stating that they had requested the Respondent not to communicate with the Complainant.

In the aforesaid circumstances, the Board viewed that the onus to communicate with the previous auditor is on the incoming auditor and the same cannot be passed on to the auditee. Also, whether the intention of the previous auditor is malafide or otherwise should not estop the incoming auditor to perform the duty cast upon him/her in terms of the requirements of Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949.

Thus, in view of the above together with the admission of the fact of non-communication with the Complainant prior to the acceptance of the appointment as the statutory auditor of the company for the FY 2018-19 by the Respondent during the course of the hearing and also in her written submissions made at the prima facie stage, the Board held the Respondent Guilty in respect of the charge alleged.

Order

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.

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