Page 404 - CA Final PARAM Digital Book.

• Ascertain that the appointment of new Auditor is in compliance with Section 139(8) of
the Act as mentioned above i.e. the resolution appointing the new auditor has been
approved by the company in the general meeting as in the case of casual vacancy by
resignation
Part III – Case Discussion
➢ In the given case, XYZ appoints you as the auditor and you observed that the previous auditors A &
Co., resigned. Also Balance Sheet as at 31-03-2015 shows an audit fee payable of ₹ 25,000.
Part IV – Conclusion
➢ Further, Clause (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949, provides
that a member in practice shall be deemed to be guilty of professional misconduct if he accepts a
position as auditor previously held by another chartered accountant without first communicating
with him in writing. Moreover, Clause (9) of Part I of the same Schedule, provides that a member in
practice shall be deemed to be guilty of professional misconduct if he accepts an appointment as
auditor of a company without first ascertaining from it whether the requirements of Section 139
and 140 of the Companies Act, 2013, in respect of such appointment have been duly complied with.
Author’s Note
Answer does not contain reference of Council Guidelines 2008.

QNO First Schedule, Part I,Cl,8 --Communication (Undercutting / Lower Audit Fees) Old Course – (N06E,
702.000 TITANIUM CNO – PE.1220 PM17)
Comment on the following with reference to the Chartered Accountants Act, 1949 and schedules thereto:
Mr. Rahul, a locally based Chartered Accountant, accepted an audit assignment at a fee lower than that

charged by the previous auditor, who was stationed in another town and had to spend a lot of
money on travel for which he did not charge separately.
Answer ➢ Since the previous auditor was stationed in another town and therefore, had to incur higher cost on
account of conveyance, and the previously the fee was decided on a composite basis inclusive of

travelling expenses of the auditor, it cannot be said that Mr. Rahul has accepted an audit assignment
based on under cutting of fees.
The motive of Mr. Rahul was not to get the work from previous auditor by accepting the audit
assignment on lower fee i.e. undercutting of fee. Because, in considering whether variation in fees
charged would constitute undercutting, the quantum of work; incidental and out of pocket expenses
and other terms of appointment should be considered.
Part I – Case Discussion
➢ In this case, Mr. Rahul is a locally based Chartered Accountant, accepted an audit assignment at a
fee lower than that charged by the previous auditor, who was outstation based Chartered
Accountant and had to spend a lot of money on travel which was included in his audit fee and was
not charged by him separately.
Part II – Conclusion
➢ Hence, Mr. Rahul will not be held guilty for misconduct.
Author’s Note
CA Act was amended in 2006. Prior to amendment there were 13 clauses in Part I, Schedule I. One of the
clauses specifically prohibited undercutting. But this clause was removed in amendment. So as of now

undercutting is allowed. So, in this question even if there is no valid reason for undercutting it will
be allowed.
However, ICAI planning to bring the clause relating to undercutting back in future.

First Schedule, Part I,Cl,8 --Communication (With previous Old Course – (M08E, N10R, M14R, PM17)
QNO
GST Auditor Who)
704.000
TITANIUM CNO – PE.1220
BC & Co., a firm of Chartered Accountants, accepted an assignment for audit under State level GST

Act, without any prior communication with the previous auditor.
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

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