Facts of the Case

The complainant, CA T. T. Durairaj Kandiar, on behalf of M/s Durairaj & Associates, was appointed as the statutory auditor of M/s Karthigeya Plastics & Technologies Private Limited for the financial year 2019–20 and completed the audit for that year. The audited financial statements disclosed audit fees payable of ₹12,20,611 as on 31.03.2020, which remained unpaid. Due to continued non-payment, the complainant firm informed the company in January 2022 that audit services would resume only upon part payment of fees.

In April 2022, the complainant firm noticed that the company had filed its financial statements for FY 2020–21 in XBRL format with Form AOC-4 on the MCA portal, wherein CA Anand K. was shown as the statutory auditor. The AOC-4 reflected an illogical SRN “Z99999999” against Form ADT-1, indicating appointment of the respondent as auditor on 27.11.2021 without resignation or removal of the complainant firm, which continued to hold office for a five-year term from 01.04.2019 to 31.03.2024.

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 statutory audit of the company for FY 2020–21 without first communicating in writing with the existing statutory auditor.

Petitioner’s Arguments

The complainant contended that the respondent accepted the audit assignment without any prior written communication as mandated under Item (8) of Part I. It was submitted that the complainant firm had neither resigned nor been removed and continued to be the statutory auditor for a valid term. The complainant also pointed out irregularities in the AOC-4 filing, including an illogical SRN for ADT-1, which indicated improper appointment of the respondent.

Respondent’s Arguments

The respondent did not appear before the Board during final hearing and did not submit written submissions on the complaint. However, in response to a communication from the Disciplinary Directorate under Rule 8(5), the respondent tendered an unconditional apology, admitting that he did not communicate with the previous auditor before accepting the assignment. The respondent clarified that he had not filed Form AOC-4 nor certified the same for FY 2020–21.

Court Order / Findings

The Board of Discipline examined the material on record, the Prima Facie Opinion of the Director (Discipline), and the respondent’s admission. The Board noted that the respondent had clearly admitted failure to comply with the mandatory requirement of prior written communication with the existing auditor before accepting the audit assignment. The Board further observed that the complainant firm was validly appointed as statutory auditor for a five-year term and had neither resigned nor been removed when the respondent was appointed.

The Board held that the absence of any evidence of prior communication, coupled with the respondent’s admission, conclusively established violation of Item (8) of Part I of the First Schedule. Other issues relating to outstanding audit fees and AOC-4 filing were held not to affect the core finding of misconduct.

Important Clarification

The Board clarified that prior written communication with the existing auditor before accepting an audit assignment is a mandatory professional requirement. Admission of failure to comply with this obligation is sufficient to attract professional misconduct under Item (8) of Part I, irrespective of whether the respondent ultimately certified statutory filings.

Final Outcome

The Board of Discipline, ICAI, held that CA Anand K. 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 ₹25,000, by order dated 25.09.2024, pursuant to its findings dated 27.08.2024.

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