Page 406 - CA Final PARAM Digital Book.

Clause (9) of Part I of the First Schedule to Chartered Accountants Act, 1949 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 Sections 139 and 140 of the
Companies Act, 2013, in respect of such appointment have been duly complied with.

Under this clause it is obligatory on the incoming auditor to ascertain from the Company that the
appropriate procedure in the matter of his appointment has been duly complied with so that no
shareholder or retiring auditor may, at a later date, challenge the validity of such appointment.

Under Clause (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949, the incoming auditor
has to ascertain whether the Company has complied with the provisions of the above sections. The word
"ascertain” means “to find out for certain”. This would mean that the incoming auditor should find out for
certain as to whether the Company has complied with the provisions of Sections 139 and, 140 of the
Companies Act, 2013. In this respect, it would not be sufficient for the incoming auditor to accept a
certificate from the management of the Company that the provisions of the above sections have
been complied with. It is necessary for the incoming auditor to verify the relevant records of the Company
and ascertain as to whether the Company has, in fact, complied with the provisions of the above sections. If
the Company is not willing to allow the incoming auditor to verify the relevant records in order to enable
him to ascertain as to whether the provisions of the above sections have been complied with, the incoming
auditor should not accept the audit assignment.

Applying the above clause to the given case, the Company is not willing to allow the incoming auditor
to verify the relevant records in order to enable him to ascertain as to whether the provisions of the above
sections have been complied with, the incoming auditor, CA Mehta should not have accepted the audit
assignment. But on the other hand, CA Mehta accepted the appointment in place of retiring auditor after
obtaining a certificate from the management which is not enough and hence CA Mehta is deemed to be
guilty of professional misconduct.

QNO First Schedule, Part I,Cl,9 Disqualification Old Course – (M10E, PM17)
705.000 TITANIUM CNO – PE.1240
Mrs. Fair is a Director of XYZ Private Limited, having 15% shareholdings in the company. During 2014,
the company appointed C.A. Mr. Lovely, Mrs. Fair's spouse, as its statutory auditor. On Mr. Lovely's
advice, the company issued fresh equity shares in 2014-15, in the ratio of one share for every two
shares held by the shareholders of the company. Mr. Lovely used to deliver audit report for
subsequent years without any comments or disclosures, thereupon
Answer Part I -- Relevant Laws
▪ Clause (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949
▪ Section 141(3)(f) of the Companies Act, 2013
Part II -- Requirements of Relevant Laws
➢ Clause (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949
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 139 and 140 read with Section 141 of the Companies Act, 2013, in respect of such appointment
have been duly complied with.
➢ Section 141(3)(f) of the Companies Act, 2013
A person shall not be eligible for appointment as an auditor of a company whose relative is a director
or is in the employment of the company as director or key managerial personnel. The definition of
‘Relative’ includes husband and wife.

Part III – Case Discussion
➢ In this case Mrs. Fair is a Director of XYZ Private Limited and the company has appointed Mr. Lovely,
Chartered Accountant, Mrs. Fair's spouse, as its statutory auditor.

Part IV – Conclusion
Mr. Lovely should not accept the appointment as statutory auditor of the company, where his wife
Mrs. Fair is director. This is contravention of section 141(3)(f) of the Companies Act, 2013.Therefore,

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