Unjustified Removal of Auditors

Unjustified Removal of Auditors

Unjustified Removal of Auditors

Procedure to be followed for dealing with the cases of unjustified removal of Auditors

  • Where an auditor resigns from his appointment as an auditor of a Company or does not offer himself for reappointment as auditor of such Company, he shall send a communication, in writing, to the Board of Directors of the Company giving reasons therefor, if he considers that there are professional reasons connected with his resignation or not offering himself for re-appointment which, in his opinion, should be brought to the notice of the Board of Directors, and shall send a copy of such communication to the Institute. It shall be obligatory on the incoming auditor, before accepting appointment to obtain a copy of such communication from the Board of Directors and consider the same before accepting the appointment.
  • Where an auditor, willing for reappointment has not been re-appointed, he shall file with the Institute a copy of the statement which he may have sent to the management of the Company for circulation among the shareholders. It shall be obligatory on the incoming auditor before accepting the appointment, to obtain a copy of such a communication from the Company and consider it, before accepting the appointment.
  • The Ethical Standards Board, on a review of the communications referred to in paras (i) and (ii) may call for such further information as it may require from the incoming auditor, the outgoing auditor and the Company and make a report to the Council in cases where it considers necessary.
  • In the case of removal of auditors by the Government, the Board will decide the procedure to be followed on consideration of the facts and circumstances of each case.
    The Council at its 229th Meeting held in November 2002, while discussing the existing procedures for dealing with the cases of unjustified removal of auditors, the Council extended the power and scope of functioning of the Board. As per the additional power, the Board has been authorized to consider the cases of unjustified removal/non-reappointment of inconvenient auditor due to his alleged qualificatory remarks/queries. Now, in addition to the existing power, the Board has also been empowered to adopt the procedure narrated hereinunder:-

    1. On receipt of a complaint from an auditor regarding his unjustified removal or non re-appointment due to alleged qualifications/queries, the Board may ask for the Statement of Reasons from the Complainant which as per complaint lead to his non re-appointment/removal.
    2. The Statement of reasons will be sent to the Incoming Auditor and Auditee for their Comments/ Observations. The Complainant and the Incoming Auditor will submit their Statement of Reasons, Observations/Comments thereof and other Submissions duly verified and in case of any wrong Submission, the members shall be liable for misconduct.
    3. The Incoming Auditor will be advised to consider the Statement of Reasons submitted by the Complainant while conducting the audit. The Incoming Auditor will be asked to submit a copy of his Audit Report for consideration of the Board. The Board, thereafter, shall examine the Statement of Reasons sent by the Complainant, the Observations/ Comments of Incoming Auditor and Auditee and the Audit Report of the Incoming Auditor to ensure that the issues raised by the Complainant have been adequately addressed to by the Incoming Auditor.
    4. It is clarified that this procedure is without prejudice to right of any person and legality of his appointment.
    5. In case of any negligence by the Incoming Auditor the matter will be referred to the Disciplinary Directorate of the Institute to treat the same as ‘Information’.
    6. It may be mentioned that so far as payment of undisputed fee of the Outgoing Auditor is concerned, the present position shall be maintained.
    7. The Board shall have the right to issue interim order, in appropriate cases.
      In this regard, an announcement was published in the December 2002 issue of the Institute’s Journal ‘The Chartered Accountant’.

A member of the Institute in practice shall be deemed to be guilty of professional misconduct, if he does not follow the direction given, by the Council or an appropriate Committee or on behalf of any of them, to the incoming auditors not to accept the appointment as auditors, in the case of unjustified removal of the earlier auditors. Attention of the members is invited to the Council guidelines in chapter 6 of the book, and published at page 686 of October 2008 issue of the Institute’s Journal, ‘The Chartered Accountant’.

A case of cancellation of bank audit was brought to the notice of Ethical Standards Board (ESB) and the Council, in which a firm of Chartered Accountant was appointed as statutory branch auditor of two branches for a ended on 31st March by their Head office vide letter dated 16th March of that year. As stipulated in the appointment letter, the firm sent its acceptance on 31st March to Head office, Under Postal Certificate. The firm started the audit of first branch and completed the same on 10th April. On contacting the second branch on 11th April, the representatives of the firm were not permitted to commence the Audit by the branch manager and a written intimation was given to them to the effect that their appointment was cancelled by Banks Divisional office due to non-receipt of acceptance letter. The Board after considering the facts and circumstances of the case, the comments of the bank and the firm’s observations thereon, decided that the appointment should not have been cancelled by the bank. The concerned bank was informed accordingly.

The form of the complaint and the list of the enclosures to be submitted along with the Complaint/Statement of Reasons is given as under:-
The Institute of Chartered Accountants of India,

ICAI Bhavan

I.P. Marg, New Delhi – 110 002

FORM OF COMPLAINT/STATEMENT OF REASONS*

Before the Ethical Standards Board (ESB)

Name of the Complainant
Complainant’s Membership No-
Address-
Phone No.-
Fax-
E-mail address-
Website-


Name of the Incoming Auditor
Membership No.-
Address-
Phone No.-
Fax-
E-mail address-
Website-


Name & address of the Entity
Address-
Phone No.-
Fax-
E-mail address-
Website-

  • Particulars of complaint/Statement of Reasons leading to removal/ non-reappointment. (Please attach separate sheet for details)
  • Particulars of evidence, oral and documentary, if any, to substantiate the complaint. (Please see the list at Annexure for suggested documents to be attached)
  • Relief sought from the Committee including the interim order.
  • Reasons/justifications for Interim Order.
  • Any legal prosecutions initiated and their status including all the relevant documents.

Signature[Partner/Proprietor/Member]


M. No.
VERIFICATION
I, ................ the Complainant, do hereby declare that what is stated above is true to the best of my information and belief. Verified today, the ....... day of ........ 20 at ..........

Signature[Partner/Proprietor/Member]


M. No.

Enclosures to be submitted along with the Complaint/ Statement of Reasons:
Certified true copies of the following documents:
  • Engagement Letter of the Complainant and Resolution for engagement of the Complainant;
  • Documents/evidence indicating removal/non-reappointment of the Complainant;
  • Relevant correspondence exchanged between the Complainant and Incoming Auditor;
  • Relevant correspondence exchanged between the Complainant and entity;
  • Copy of Certificate/Audit Report and other Certificates/Draft Audit Report/ Qualifications/Final accounts which lead to his removal, if any;
  • Extract of the Relevant Rules/Regulations for engagement of Auditor;
  • Any other relevant papers/documents on the issues involved.
To be filed alongwith a D.D of Rs. 1.000/- in favour of the Secretary, ICAI