Page 407 - CA Final PARAM Digital Book.

Mr. Lovely is liable for misconduct as per Clause (9) of Part I of the First Schedule to the Chartered
Accountants Act, 1949.
Author’s Note

Additional Points that can also be mentioned in this question.
➢ Appointment of Auditor in case of Relative Holding Substantial Interest:
Clause (4) of Part I of Second Schedule to the Chartered Accountants Act, 1949 states that if an
auditor expresses his opinion on the financial statements of any business or enterprises in which
he, his firm or a partner in his firm has a substantial interest, he is committing professional
misconduct.
➢ Council Guidelines 2008 & AS 18
Further as per Council General Guidelines, a member of the Institute shall not express his opinion
on financial statements of any business or enterprise in which one or more persons, who are his
“relatives” within the meaning of AS 18 have, either by themselves or in conjunction with such
member, a substantial interest in the said business or enterprise.
Where Auditor and Company are related (Tips)
➢ Where Auditor and Company are having relation of any kind, Clause (4) of Part I of the Second
Schedule should be referred in all questions and if substantial interest is not found conclusion
should be given not guilty but mentioning the clause is must.
➢ Where Auditor and Company are having relation of any kind Council guidelines should be
referred in all questions
➢ AS 18 (always when relative is involved)
As per AS 18 Relative" means the spouse, son, daughter, brother, sister, father and mother who
may be expected to influence, or be influenced by that individual in his/her dealings with the
reporting enterprise
➢ Companies Act section shall also be referred. ( if question mentions the following:-)
• If CA himself or relative is director or is in employment with company as director or KMP
- Section 141(3)(f) of the Companies Act, 2013
• If CA himself or relative is holding shares in company and question tells about the face
value of the shares held by relative - Section 141(3)(d) of the Companies Act, 2013.
• And where section 141(3) applies Clause (9) of Part I of the First Schedule also applies

First Schedule, Part I,Cl,9 Improper Old Course – (N08E, N11R, N12M, M15E, PM17, SM17,
QNO Appointment (Declined to Accept) M21E)
706.000
TITANIUM CNO – PE.1240 New Course- (SM23)
M/s AWE & Co, Chartered Accountants were appointed as Auditors of WOW Ltd. for the F.Y. 2019-20.
Since they declined to accept the appointment, the Board of Directors appointed M/s GDC & Co, a CA
firm as the auditor in the place of M/s AWE & Co. This was accepted by M/s GDC & Co. Discuss this with
reference to Chartered Accountants Act, 1949 and Companies Act, 2013.

OR
CA. X was appointed as the Auditor of ABC Ltd. for 2014-15. Since he declined to accept the
appointment, the Board of Directors appointed CA. Y as the auditor in the place of CA. X, which was
also accepted by CA. Y.
Answer Part I -- Relevant Laws
▪ Clause (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949

▪ Section 139 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

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