Facts of the Case

The complainant, CA Anumeha Garg, was appointed as auditor of Zila Panchayat, Balrampur by the Government of Chhattisgarh for Financial Year 2015-16, including audit of MGNREGA and other implementing agencies. After completion of the audit, the complainant came to know that the respondent, CA Anoop Kumar Gupta, had been appointed as auditor of Zila Panchayat, Balrampur and all implementing agencies for the subsequent Financial Year 2016-17.

The complainant alleged that the respondent accepted the statutory audit assignment without obtaining No Objection Certificate or making prior written communication with her, despite the complainant having undisputed audit fees pending for FY 2015-16. The complainant also sent an email dated 01.06.2017 advising the respondent to refrain from accepting or executing the audit assignment unless the outstanding fees were settled and due communication was made. 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 of Zila Panchayat without prior written communication with the outgoing auditor, whether government audit assignments are exempt from ethical requirements, and whether failure to retain positive evidence of communication constitutes misconduct.

Petitioner’s Arguments

The complainant contended that it is a settled position under ICAI guidelines that communication with the previous auditor is mandatory for all types of audits, including government audits. It was argued that the respondent neither obtained written NOC nor retained any positive evidence of communication prior to accepting the audit. The complainant relied on email correspondence, appointment orders, and ICAI Code of Ethics to demonstrate violation of Item (8) of Part I of the First Schedule.

Respondent’s Arguments

The respondent contended that in case of government audits, obtaining NOC from the previous auditor is not mandatory. He submitted that he had orally communicated with the complainant and also relied upon a letter issued by Zila Panchayat stating that no fees were payable to the previous auditor. The respondent, however, failed to produce any documentary evidence of written communication made prior to acceptance of the audit assignment.

Court Order / Findings

The Board of Discipline examined Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949 and relevant provisions of the ICAI Code of Ethics, 2009. The Board observed that two mandatory conditions must be fulfilled: communication with the previous auditor must be prior to acceptance and must be in writing. The Board further observed that these requirements apply uniformly to all types of audits, including government and non-government audits.

The Board noted that the respondent failed to produce any documentary or positive evidence establishing prior written communication with the complainant before accepting the statutory audit of Zila Panchayat, Balrampur for FY 2016-17. The Board rejected the plea that government audit appointments are exempt from ethical safeguards and held that oral communication or reliance on third-party letters does not satisfy the mandatory requirement under Item (8).

Accordingly, 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 is a substantive ethical requirement applicable to all audits, including government audits. Incoming auditors must retain positive evidence of such communication, and failure to do so constitutes professional misconduct irrespective of the nature of the auditee or appointment authority.

Final Outcome

The Board of Discipline held the respondent, CA Anoop Kumar Gupta (M. No. 414659), guilty of professional misconduct under Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949. A monetary penalty of ₹10,000 was imposed on the respondent.

Source Link- https://www.mytaxexpert.co.in/uploads/1768899109_CA.AnumehaGargM.No.521429AmbikapurvsCA.AnoopKumarGuptaM.No.414659Surguja.pdf

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