Facts
of the Case
The
complainant, CA Amit Amol Lomte, was appointed as the Statutory Auditor of M/s
Hatchway Windsor Private Limited for Financial Year 2018-19 and continued as
auditor till 31.03.2019. The complainant’s audit fees for the year ended
31.03.2019 remained outstanding. Subsequently, the respondent, CA Piyush
Omprakash Singh, accepted appointment as Statutory Auditor of the said company
for Financial Year 2019-20 and signed the statutory audit report for the year
ended 31.03.2020.
The
complainant alleged that the respondent accepted and completed the statutory
audit without obtaining prior written communication or no-objection from the
complainant, who was the previous auditor, and without ensuring that
outstanding audit fees were settled. Disciplinary proceedings were initiated
under Section 21A of the Chartered Accountants Act, 1949.
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 without prior written communication with the
outgoing auditor, whether communication sent without retaining positive
evidence of delivery satisfies ethical requirements, and whether signing the
audit report in such circumstances constitutes misconduct.
Petitioner’s
Arguments
The
complainant contended that the respondent signed the statutory audit report for
FY 2019-20 without first communicating in writing with the complainant and
without ensuring that professional dues were cleared. It was argued that the
respondent violated the mandatory ethical safeguards under Item (8) of Part I
of the First Schedule and the ICAI Code of Ethics, which require prior written
communication supported by positive evidence of delivery.
Respondent’s
Arguments
The
respondent submitted that he had attempted to obtain no-objection by sending a
letter dated 27.10.2020 to the complainant. It was contended that due to
inadvertent error by his office assistant, the letter was sent by ordinary post
instead of Registered Post Acknowledgement Due. The respondent further
submitted that outstanding fees of the complainant were cleared before signing
the audit report and that he waited for a reasonable period before proceeding
with the audit. It was argued that there was no mala fide intention and that
the lapse was procedural.
Court
Order / Findings
The
Board of Discipline examined Item (8) of Part I of the First Schedule to the
Chartered Accountants Act, 1949 and the relevant provisions of the ICAI Code of
Ethics, including the requirement to retain positive evidence of delivery of
communication to the outgoing auditor. The Board observed that two essential
conditions must be satisfied: communication must be prior to acceptance of
audit and must be in writing with positive evidence of delivery.
The
Board noted that the respondent admittedly sent the communication by ordinary
post and failed to retain positive evidence of delivery as required under the
Code of Ethics. The Board further observed that email communication relied upon
by the respondent was sent after signing the statutory audit report, which did
not cure the defect. Accordingly, the Board held that the respondent failed to
comply with the mandatory ethical requirement before accepting and executing
the statutory audit assignment.
The
Board concluded that the respondent was guilty of professional misconduct under
Item (8) of Part I of the First Schedule to the Chartered Accountants Act,
1949.
Important
Clarification
The
Board clarified that prior written communication with the outgoing auditor must
be supported by positive evidence of delivery such as RPAD, acknowledged email,
or other prescribed modes. Communication sent without ensuring delivery does
not satisfy the ethical mandate. Subsequent communication after signing the
audit report cannot regularise the violation.
Final
Outcome
The
Board of Discipline held the respondent, CA Piyush Omprakash Singh (M. No.
145401), guilty of professional misconduct under Item (8) of Part I
of the First Schedule to the Chartered Accountants Act, 1949. A monetary
penalty of ₹25,000 was imposed on the respondent.
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