In this case, the Respondent, who was the statutory auditor for the financial years 2012–13 to 2014–15, was held guilty of professional misconduct for failing to report a significant outstanding loan of `19.44 crore owed by the Company to Bank, which had been classified as a non-performing asset and was under litigation before the Debt Recovery Tribunal. Despite being aware of the classification and legal proceedings, the Respondent did not report this material fact in his audit reports, nor did he disclose the associated contingent liabilities or security against the property in the financial statements, thereby failing to exercise due diligence and violating Clauses (5) and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. Further, the Respondent accepted the statutory audit for FY 2014–15 without ensuring that the previous auditor had properly resigned or was removed in accordance with Sections 139 and 140 of the Companies Act, 2013. The Committee noted that the consent letters on record were contradictory, as the Respondent’s consent was dated prior to that of the outgoing auditor, and no documentary evidence was submitted to establish written communication with the previous auditor in the manner prescribed under Clause (8) of Part I of the First Schedule. The Respondent also failed to produce minutes of appointment, resolutions passed by the Board or shareholders, or approval of the Central Government, if applicable, in accordance with Clause (9) of the First Schedule. The Committee, therefore, concluded that the Respondent had failed to comply with professional standards and statutory requirements and accordingly held him guilty of professional misconduct under Clauses (5) and (7) of Part I of the Second Schedule and Clauses (8) and (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949. [PR-174A/2017/DD/229/2017/DC/1351/2020]

In this case, the Respondent was held guilty of professional misconduct for accepting the tax audit of six entities for the financial year 2017–18 without first communicating in writing with the Complainant, who was the previous auditor. The Committee noted that the Respondent merely attempted to contact the Complainant telephonically and failed to produce any positive evidence of communication in the prescribed manner, such as through Registered Post or other modes that ensure proof of delivery. As per the Code of Ethics and Clause (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949, it is mandatory for the incoming auditor to communicate with the outgoing auditor in writing before accepting such assignments. The Respondent’s failure to comply with this requirement constituted a violation of professional standards, and he was accordingly held guilty under Clause (8). With respect to the allegation of accepting audit assignments where undisputed fees of the previous auditor were pending, the Committee noted that the Complainant failed to substantiate this charge with the relevant financial statements or supporting records. It was also observed that a sum of `1.73 lakhs had already been paid to the Complainant, which could be construed as payment towards audit or other services, and the Complainant had not raised any formal objection with the auditee entity for non-payment of fees. Hence, in the absence of documentary evidence, the Committee exonerated the Respondent from the charge under Clause (1) of Part II of the Second Schedule to the Chartered Accountants Act, 1949. [PR/57/19-DD/79/19-DC/1374/2020]