Page 450 - CA Final PARAM Digital Book.

Part III – Case Discussion
➢ In the instant case, such non-verification happened for two years. It also appears that auditors
failed to confirm the value of investments from any proper source. In case auditor has simply
relied on the management’s representation, the auditor has failed to perform his duty.
Part IV – Conclusion
➢ Accordingly, Mr. A, will be held liable for professional misconduct under Clauses (2), (7) and (8) of
Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Second Schedule, Part I,Cl,9 --Audit of Listed Company Old Course-- (M22E)
QNO
Without Peer Review Certificate
759.500
TITANIUM CNO – PE.1540
"CA K qualified as Chartered Accountant and started practice as proprietor in the name of M/s K &
Associates in the year 2015-16. LST Limited, a listed entity, appointed M/s K & Associates as Statutory
Auditor for the year ended 31st March, 2022. CA K signed the balance sheet of LST Limited for the year

ended 31st March, 2022 on 14th May, 2022. M/s K & Associates never subjected themselves to the Peer
Review process of the Institute since its inception of practice. Comment with reference to the Chartered
Accountants Act, 1949 and Schedules thereto."
Answer Clause (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 states that a Chartered
Accountant in practice shall be deemed to be guilty of misconduct if he fails to invite attention to any
material departure from the generally accepted procedure of audit applicable to the circumstances.

This clause implies that the audit should be performed in accordance with “generally accepted procedure
of audit applicable to the circumstances” and if for any reason the auditor has not been able to perform
the audit in accordance with such procedure, his report should draw attention to the material departures
from such procedures. What constitutes “generally accepted audit procedure” would depend upon the
facts and circumstances of each case, but guidance is available in general terms from the various
pronouncements of the Institute is issued by way of Engagement and Quality Control Standards,
Statements, General Clarifications, Guidance Notes Technical Guides, Practice Manuals, Studies and Other
Papers.

Audit of Listed Companies: Pursuant to SEBI Notification, statutory audit of listed companies under the
Companies Act, 2013 shall be done by only those auditors who have subjected themselves to the Peer
Review process of the Institute, and hold a valid certificate issued by the Peer Review Board of the ICAI.

In the given case of M/s. K & Associates, who is appointed auditor of a listed entity LST Limited for the year
ended 31.03.2022, CA K, the proprietor signed the balance sheet on 14.05.2022 but never subjected the
firm to the Peer Review process of the Institute. CA K would be held guilty of professional misconduct
under clause (9) of Part I of Second Schedule of the Chartered Accountants Act, 1949. Also, CA K did not
comply with the SEBI Notification which was required to be complied with.

Alternative Solution
Clause (1) of Part II of the Second Schedule to the Chartered Accountants Act, 1949 states that a chartered
accountant in practice shall be deemed to be guilty of misconduct if he contravenes any of the provisions
of this Act or the regulations made thereunder or any guidelines issued by the Council. It requires every
member of the institute to act within the framework of the Chartered Accountants Act, 1949 and the
regulations and guidelines made by Council thereunder.

The Statement on Peer Review shall be deemed to be a guideline of the Council under Clause (1) of Part II
of Second Schedule to the Act and it is obligatory for the Practice Unit to comply with the provisions
contained in this Statement.

As per the Statement every Practice Unit including its branches who has conducted Statutory Audit of
Enterprises whose equity or debt securities are listed in India or abroad as defined under SEBI(LODR)
regulations, 2015, will be subject to Peer Review in accordance with this statement.

Audit of Listed Companies: Pursuant to SEBI Notification, Statutory Audit of Listed Companies under the
Companies Act, 2013 shall be done by only those auditors who have subjected themselves to the Peer
Review process of the Institute, and hold a valid certificate issued by the Peer Review Board of the ICAI. In
the given case of M/s K & Associates, who is appointed auditor of a listed entity LST Limited for the year

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