Facts of the Case

A complaint was filed by CA (Dr.) Girish B. Gundesha, Pune, against CA Rupesh Prakash Lohade alleging professional misconduct. The complaint related to acceptance of Statutory and Tax Audit assignments for Financial Year 2016–17 of the following entities:
(a) Fossil Estate
(b) Fossil Hotels Pvt. Ltd.
(c) Ishanya Motors LLP
(d) Ishanya Financial Services

The complainant was the previous auditor of the above entities. It was alleged that the Respondent accepted the audit assignments without first communicating in writing with the complainant, as mandatorily required under the Chartered Accountants Act, 1949 and the Code of Ethics.

Issues Involved

Whether the Respondent accepted statutory and tax audit assignments previously held by another Chartered Accountant without first communicating with him in writing, and whether such acceptance amounted to professional misconduct under Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949.

Petitioner’s Arguments

The complainant contended that the Respondent violated mandatory professional ethics by accepting the audit assignments without any prior written communication. It was submitted that no no-objection or written intimation was received before the Respondent undertook the audits, and that such conduct amounted to clear contravention of Item (8) of Part I of the First Schedule.

The complainant further alleged that the Respondent attempted to justify the acceptance on the basis of implied consent and prior association, which is impermissible under the Code of Ethics.

Respondent’s Arguments

The Respondent submitted that the complainant was aware of the audit handover and that there were exchanges of emails between the parties. He contended that the audit work was handed over with implied consent and that he had orally communicated with the complainant prior to acceptance.

The Respondent further submitted that he had earlier acted as internal auditor for one of the group entities and had professional interaction with the complainant for several years. He also stated that pending audit fees of the complainant were not known to him at the time of acceptance and that there was no intention to poach clients or act unethically.

Court Order / Findings

The ICAI Board of Discipline examined the complaint, documentary evidence, email correspondence produced by both parties, and oral submissions made during the hearing.

The Board observed that documentary evidence established that the Respondent was the Statutory and Tax Auditor only of Fossil Hotels Pvt. Ltd. and Ishanya Financial Services for Assessment Year 2017–18. With respect to Fossil Estate and Ishanya Motors LLP, no documentary evidence was produced to show acceptance of audit without communication, and therefore charges in respect of those entities were not sustained.

The Board referred to the Code of Ethics and judicial precedent, including R.M. Singhai & Associates vs. R.V. Agarwal, and reiterated that Item (8) of Part I of the First Schedule requires prior written communication with positive evidence of delivery. The Board categorically held that oral communication, implied consent or prior acquaintance does not absolve the incoming auditor of this responsibility.

In the absence of any proof of written communication prior to acceptance of audit of Fossil Hotels Pvt. Ltd. and Ishanya Financial Services, the Board held that the Respondent contravened Item (8) of Part I of the First Schedule.

Important Clarification

The Board clarified that prior written communication with the previous auditor is a mandatory and non-negotiable ethical requirement. Inherent knowledge of the incoming auditor or exchange of emails unrelated to the specific audit does not satisfy the requirement. Any acceptance of audit without such communication constitutes professional misconduct.

Final Outcome

The ICAI Board of Discipline held CA Rupesh Prakash Lohade (M. No. 152854) Guilty of “Professional Misconduct” under Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949.

By order dated 10 January 2022, passed under Section 21A(3) of the Act, the Board Reprimanded the Respondent.

Source Link - https://www.mytaxexpert.co.in/uploads/1768900012_CA.Dr.GirishB.GundeshaM.No.042885vsCA.RupeshPrakashLohadeM.No.152854Pune.pdf

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