Page 408 - CA Final PARAM Digital Book.

of now Section 139 and 140 read with Section 141 of the Companies Act, 2013, in respect of such
appointment have been duly complied with.
➢ Section 139 of the Companies Act, 2013
Board can appoint the auditor in the case of casual vacancy under Sections 139(8)(i) and Section
139(6) of the Companies Act, 2013. The non-acceptance of appointment by CA. X does not constitute
a casual vacancy to be filled by the Board. In this case, it will be deemed that no auditor was
appointed in the AGM.

Further, as per Section 139(10) of the Companies Act, 2013 when at any annual general meeting, no
auditor is appointed or re-appointed, the existing auditor shall continue to be the auditor of the
company.

Part III – Case Discussion
➢ In the present case, CA X declined to accept appointment as auditor of ABC Ltd and the company
appointed CA Y as the auditor without communicating with CA X.

Part IV – Conclusion
➢ The appointment of the auditor by the Board is defective in law. Hence CA. Y is guilty of professional
misconduct as per Clause (9) of the First Schedule as he accepted the appointment without
verification of statutory requirements.
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 . This question and the answer needs to be changed .

First Schedule, Part I,Cl,9 Acceptance before ascertaining the Old Course – (N23M)
QNO
706.500 requirements
TITANIUM CNO -- PE.1240
Mr. Sunil was appointed statutory Auditor of M. Autotech Limited after Mr. Ram resigned from the position
of auditor on 31-07-2022 for the financial year 22-23. Mr. Sunil received the appointment letter duly signed
by the Board of Directors and a resolution of the Audit Committee recommending the name of Mr. Sunil to
the Board. Mr. Sunil received the letter of appointment on 31 -07-2022, which he accepted on 01-08-2022.
On 15-08-2022, Mr. Sunil fixed a meeting with Mr. Ram to understand the reasons for his resignation and
any concerns he should be aware of about the company. Prior to this, Mr. Sunil had not communicated
with Mr. Ram. The Board of M Autotech Limited filed ADT-1 with the registrar on 31-08-2022. Mr. Sunil,
after performing the audit, issued his audit report on 31-05-2023. The registrar, after issuance of the audit
report, suo moto initiated an inquiry regarding the appointment of Mr. Sunil as the auditor of the company.
After the inquiry, Registrar issued a report to ICAI wherein it was mentioned that Mr Sunil should be held
guilty of professional misconduct. You are required to guide Mr. Sunil with respect to the recommendation
of the registrar for him being guilty of professional misconduct
Answer A member in practice shall be held guilty of professional misconduct as per clause 9 of Part I of the First
Schedule where he accepts an appointment as auditor of a company without first ascertaining from it whether
the requirements of Section 225 of the Companies Act, 1956 (1 of 1956), in respect of such appointment have
been duly complied with (corresponding to section 139 and 140 of Companies Act, 2013).

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 for 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.

As per section 139(8) of the Companies Act, 2013, any casual vacancy in the office of an auditor shall in the
case of a company other than a company whose accounts are subject to audit by an auditor appointed by the
Comptroller and Auditor-General of India, be filled by the Board of Directors within thirty days, but if such
casual vacancy is as a result of the resignation of an auditor, such appointment shall also be approved by the
company at a general meeting convened within three months of the recommendation of the Board and he
shall hold the office till the conclusion of the next annual general meeting.
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