Facts of the Case

The complainant, CA Nitin S. Bangad, was appointed as the statutory auditor of M/s Veer Gurjar Aluminum Industries Private Limited and conducted the statutory audit up to the financial year ending March 2011. As per the audited accounts, audit fees of ₹7.72 lakhs were payable to the complainant’s firm for FY 2010–11, out of which only part payment was received, leaving an outstanding balance of ₹4.72 lakhs.

It was alleged that the respondent, CA Ashish Ashok Baheti, accepted and conducted the statutory audit of the company for the financial years March 2012 to March 2017 without any prior written communication with the complainant and without ensuring that the outstanding audit fees of the complainant were paid. The complainant had neither resigned nor was formally replaced, and the AGM notice of the company continued to refer to re-appointment of the complainant firm.

Issues Involved

Whether the respondent Chartered Accountant was guilty of professional misconduct under Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949 for accepting the position of statutory auditor without prior written communication with the outgoing auditor and without ensuring clearance of outstanding audit fees.

Petitioner’s Arguments

The complainant contended that the respondent accepted the statutory audit assignment without any prior communication despite repeated attempts made by the complainant through registered post and email. It was further submitted that the respondent ignored the existence of outstanding audit fees of ₹4.72 lakhs for FY 2010–11, which were duly reflected in the complainant’s ledger and embedded within the audited financial statements under the head “Creditors for Goods & Expenses.” The complainant argued that such conduct directly violated Item (8) of Part I and professional ethics.

Respondent’s Arguments

The respondent appeared in person before the Board and admitted that he had not obtained No Objection Certificate or prior written communication from the complainant before accepting the audit. He also admitted during the hearing that there were outstanding audit fees payable to the complainant. The respondent did not effectively rebut the allegations and sought leniency.

Court Order / Findings

The Board of Discipline examined the documentary evidence, AGM notice dated 05.09.2011, ledger extracts, submissions of the complainant, and admissions of the respondent. The Board observed that the complainant had not resigned as statutory auditor and that there was no evidence of communication between the respondent and the complainant prior to acceptance of the audit.

The Board reiterated that Item (8) of Part I mandates compulsory prior written communication with the outgoing auditor before accepting an audit assignment. The Board further noted that the respondent admitted non-obtaining of NOC and acknowledged the existence of outstanding audit fees. These facts conclusively established professional misconduct.

Important Clarification

The Board clarified that prior written communication with the outgoing auditor is a mandatory statutory requirement and not a mere procedural formality. Additionally, acceptance of audit without ensuring settlement of outstanding audit fees of the predecessor auditor aggravates the professional lapse and undermines ethical standards of the profession.

Final Outcome

The Board of Discipline, ICAI, held that CA Ashish Ashok Baheti was GUILTY of Professional Misconduct under Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949. In exercise of powers under Section 21A(3), the Board imposed a fine of ₹1,00,000, by order dated 10.01.2025, pursuant to its findings dated 27.08.2024.

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