Facts of the Case

A complaint was filed by CA Gaurav Sharma, Siliguri, stating that he was appointed as Statutory Auditor of the Company on 30 September 2014 and continued as auditor for Financial Years 2014–15 and 2015–16. The complainant alleged that for FY 2015–16, the Respondents accepted appointment as statutory auditors without complying with mandatory requirements under the Chartered Accountants Act, 1949 and the Companies Act, 2013.

It was alleged that CA Poonam Kumari Gupta accepted the audit assignment without first communicating in writing with the complainant as the retiring auditor. It was further alleged that CA Vidhi Churiwala, acting as statutory auditor, failed to ensure compliance with Section 140 of the Companies Act, 2013, relating to proper removal of the existing auditor.

The complainant contended that there were discrepancies in dates relating to resignation, EGM notices, and appointment filings, and that the Respondents proceeded with the audit despite unresolved procedural irregularities.

Issues Involved

Whether the Respondents accepted statutory audit assignment without prior written communication with the retiring auditor in violation of Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949, and whether failure to ensure compliance with Section 140 of the Companies Act, 2013 constituted professional misconduct.

Petitioner’s Arguments

The complainant submitted that no prior written communication was made before acceptance of audit. It was argued that discrepancies in resignation dates, EGM proceedings and appointment filings clearly demonstrated non-compliance with statutory requirements. The complainant contended that both Respondents ignored mandatory safeguards meant to protect auditor independence and statutory discipline.

Respondents’ Arguments

CA Poonam Kumari Gupta submitted that she had issued letters seeking no objection from the complainant and that the complainant failed to respond. She contended that there is no statutory requirement to obtain a No Objection Certificate and that she acted on representations made by the management.

CA Vidhi Churiwala submitted that compliance with Sections 139 and 140 of the Companies Act is primarily the responsibility of the company and that she relied upon documents provided by management, including EGM notice, resignation letter and appointment resolutions.

Court / Authority Order and Findings

The Board of Discipline examined the entire sequence of events and documents placed on record. The Board noted a clear mismatch in dates relating to resignation of the complainant and appointment of the Respondents. The Board observed that although letters seeking no objection were claimed to have been sent, proof of proper prior written communication before acceptance of audit was not satisfactorily established.

The Board reiterated that Item (8) of Part I of the First Schedule mandates two essential requirements: communication must be prior to acceptance and must be in writing. The Board further observed that an incoming auditor cannot blindly rely on management representations and is duty-bound to verify compliance with Sections 139 and 140 of the Companies Act, 2013.

The Board held that Respondent No.1 failed to establish compliance with Item (8) of Part I of the First Schedule, and Respondent No.2 failed to ensure compliance with Section 140 of the Companies Act before accepting the statutory audit assignment.

Important Clarification

The Board clarified that absence of response from the retiring auditor does not absolve the incoming auditor of responsibility. Written communication must be made prior to acceptance and statutory compliance regarding removal of the existing auditor must be independently verified. Reliance solely on management documents is insufficient.

Final Outcome

The ICAI Board of Discipline held CA Poonam Kumari Gupta (M. No. 302794) and CA Vidhi Churiwala (M. No. 307866) 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 exercise of powers under Section 21A(3) of the Act, by order dated 19 April 2023, the Board reprimanded both the Respondents.

Source Link- https://www.mytaxexpert.co.in/uploads/1768820290_CA.GauravSharmaM.No.069055SiligurivsCA.PoonamKumariGuptaM.No.302794Kolkata.pdf

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