Page 440 - CA Final PARAM Digital Book.

Schedule to the Chartered Accountants Act, 1949 and Mr. Shah shall have to vacate the office
accordingly.
Author’s Note:

In Companies Act and in CA Act we have to see whether person is a relative from point of view of
Chartered Accountant/Auditor.
In this particular question father-in-law is a director having 25% and more holding in the company.
Father-in-law does not come under the definition of relative, whether in Companies Act or CA Act. So
Chartered Accountant can do audit.
But Institute has taken definition of relative from the point of view of director i.e. son’s wife is relative.
We think it is inappropriate and the Chartered Accountant is not guilty. But if similar question comes
in exam then you should explain both the point of view.

Second Schedule, Part I, Cl 4 -- Resigned as Director Old Course-- (SM21, N21E)
QNO
747.070 and accepted the Statutory Auditor position New Course-- (SM23)
TITANIUM CNO – PE.1520
Mr. D, a practicing CA, is appointed as a Director Simplicitor in XYZ Pvt. Ltd. After one year of
appointment, Mr. D resigned as the Director and accepted the Statutory Auditor position of the
company. Is Mr. D right in accepting the auditor position?
Part I -- Relevant Standards & Laws
➢ Clause (4) of Part I of the Second Schedule to the Chartered Accountants Act, 1949
➢ Section 141 of the Companies Act, 2013
➢ Clarifications issued by the Council
Part II -- Requirements of Relevant Standards & Laws
➢ Clause (4) of Part I of the Second Schedule to the Chartered Accountants Act, 1949
A Chartered Accountant in practice is deemed to be guilty of professional misconduct if he
expresses his opinion on financial statements of any business or enterprise in which he, his firm, or
a partner in his firm has a substantial interest.

➢ Section 141(3)(f) of the Companies Act, 2013
Section 141 of the Companies Act, 2013 specifically prohibits a member from auditing the
accounts of a company in which he is an officer or employee. Although the provisions of the
aforesaid section are not specifically applicable in the context of audits performed under other
statutes, e.g., tax audit, yet the underlying principle of independence of mind is equally applicable
in those situations also. Therefore, the Council’s views are clarified in the following situations.

➢ Clarifications issued by the Council
As per the clarifications issued by the Council, a member shall not accept the assignment of audit
of a Company for a period of two years from the date of completion of his tenure as
Director, or resignation as Director of the said Company.
Part III – Case Discussion
➢ In the instant case, Mr. D, a practicing CA, is appointed as a Director Simplicitor in XYZ Pvt. Ltd.
After one year of appointment, Mr. D resigned as the Director and accepted the Statutory Auditor
position of the company.
Part IV – Conclusion
➢ In view of above provisions Mr. D cannot accept the Directorship of the company until the
completion of two years after his resignation. Thus, CA, D would be held guilty of
professional misconduct under clause 4 of Part 1 of Second Schedule of the Chartered Accountants
Act, 1949.

Second Schedule, Part I,Cl,4 -- Resigned as Director and accepted Old Course— (M21M)
QNO the Statutory Auditor Position (One More Case)
747.080
TITANIUM CNO – PE.1520
Mr. Dhawal, a practicing CA, is appointed as a Director Simplicitor in Gautam Pvt. Ltd. After three year
of appointment, Mr. Dhawal resigned as the Director and accepted the Statutory Auditor position
of the Company. Is Mr. Dhawal right in accepting the auditor position? Comment with reference to
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