Page 401 - CA Final PARAM Digital Book.

➢ Thus, in the instant case, Mr. D would be held to be guilty of professional misconduct and liable for
disciplinary action.

QNO First Schedule, Part I,Cl,8 --Communication (After Acceptance Before Signing) Old Course – (PM17)
696.000 TITANIUM CNO – PE.1220 New Course – (SM23)

Mr. X, a Chartered Accountant accepted his appointment as tax auditor of a firm under Section 44AB, of
the Income-tax Act, and commenced the tax audit within two days of his appointment since the client
was in a hurry to file Return of Income before the due date. After commencing the audit, Mr. X realised
his mistake of accepting this tax audit without sending any communication to the previous tax
auditor. In order to rectify his mistake, before signing the tax audit report, he sent a registered post to
the previous auditor and obtained the postal acknowledgement. Will Mr. X be held guilty under the
Chartered Accountants Act?
Answer Part I -- Relevant Laws
▪ Clause (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949

Part II -- Requirements of Relevant Laws
➢ Mr. X will be held guilty since he has accepted the tax audit, without first communicating with the
previous auditor in writing.

The object of the incoming auditor communicating in writing with the retiring auditor is to ascertain
whether there are any circumstances which warrant him not to accept the appointment, for
example, whether the previous auditor has been changed on account of having qualified the report
or he had expressed a wish not to continue on account of something inherently wrong with the
administration of the business. The retiring auditor may even give out information regarding the
condition of the accounts of the client or the reason that impelled him to qualify his report. Under
all circumstances, it would be essential for the incoming auditor to carefully consider the facts
before deciding whether or not he should accept the audit. As a matter of professional courtesy and
professional obligation it is necessary for the new auditor appointed to communicate with such
earlier auditor.

The Code of Ethics further points out that it would also be a healthy practice if a tax auditor
appointed for conducting special audit under the Income-tax Act, 1961 communicates even with the
member who has conducted the statutory audit. Considering the above, though.

It is further provided that if the time schedule given for assignment is such that there is no time to
wait for the reply from the retiring auditor, the incoming auditor may give conditional acceptance
of the appointment and can commence the work immediately after he has sent the communication
to the retiring auditor.

Part III – Case Discussion
➢ In the present case, Mr. X, a Chartered Accountant accepted his appointment as tax auditor without
sending any communication to the previous tax auditor. In order to rectify his mistake, before
signing the tax audit report, he sent a registered post to the previous auditor and obtained the postal
acknowledgement.

Part IV – Conclusion
➢ Mr. X tried to rectify his mistake, by communicating with the previous tax auditor after accepting
the audit but before signing the audit report, the auditor will be held guilty of professional
misconduct.

Refer: Praful R.Gandhi of M/s Padamchand Jain & Associates councils decision dated 29th Aug 2005.
Author’s Note
As per Companies Act 2013, now acceptance by auditor is not required after appointment. Now in fact
prior approval is required before appointment. But clause 8 is not yet amended to bring it at par with
companies act.

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