Page 403 - CA Final PARAM Digital Book.

First Schedule, Part I,Cl,8 --Communication Of Internal Auditor to Old Course – (N14R, N16M, PM17,
QNO Statutory Auditor M19M, M21E)
699.000
TITANIUM CNO – PE.1220
CA. T, in practice, was appointed to carry out internal audit of a stock broker, listed with BSE. However,
he failed to intimate his appointment to the statutory auditors of the company. The statutory auditor

feels this is violation of professional ethics.
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
➢ A chartered accountant in practice is deemed to be guilty of professional misconduct, if he accepts
a position as auditor previously held by another chartered accountant or a certified auditor who has
been Issued certificate under the Restricted Certificate Rules, 1932 without first communicating
with him in writing.

This clause is applicable in situation of replacing of one auditor by another auditor. Internal
auditor and statutory audition are parallel positions and not replacement positions. The
management generally appoints the internal auditor whereas the statutory auditor will be
appointed by the shareholders in the AGM. In this situation there is no need for communication
by one to other.

Part III – Case Discussion
➢ In the given case, CA T, Internal Auditor of stock broker failed to intimate his appointment to the
statutory auditors of the company.

Part IV – Conclusion
➢ In view of above the contention of the statutory auditor is unacceptable and there is no question
of communicating in writing by Mr. T.

QNO First Schedule, Part I,Cl,8-Communication (Previous Audit Fees Unpaid) Old Course – (M09R, N10E,
700.000 TITANIUM CNO – PE.1220 N12R, PM17)
XYZ Ltd. appoints you as the auditor of the company. You observe that previous auditors A & Co.,
resigned. Also Balance Sheet as at 31-03-2015 shows an audit fee payable of ` 25,000. What precautions
you will take before commencing the audit work?
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
➢ Precautions before Commencing the Audit Work:
In the instant case, before accepting the appointment as well as commencing the audit work, the
auditor should see the following –
• Check whether a statement, in the prescribed form, has been filed by the resigning
auditor within a period of 30 days from the date of resignation, to the company and the
registrar (or the Comptroller and Auditor-General of India, as the case may be), indicating
the reasons and other facts as may be relevant with regard to the resignation, for the
compliance of Section 140(2) of the Companies Act, 2013 (herein after referred as the Act).
• The auditor must obtain the NOC from previous auditor. He should also refer the
resignation statement file by the previous auditor and communicate with him (previous
auditor) to ascertain the circumstances which led up him to retire.
• The auditor must ascertain whether there existed any circumstances on account of
which he should not accept the appointment.
• As per Section 139 of the Act, the auditor must ensure that before any appointment or
reappointment of auditors is made at an annual general meeting, a written certificate
has been provided by him to the company that his appointment is in accordance with
the limits specified in Section 141(3)(g).
• He should also satisfy himself that the notice provided for under Sections 139 and 140 has
been effectively served on the outgoing auditor.

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