Page 460 - CA Final PARAM Digital Book.

Answer Part I -- Relevant Laws
▪ Council General Guidelines 2008-Appointment of an Auditor in case of non-payment of undisputed
fees
Part II -- Requirements of Relevant Laws
➢ A member of the Institute of Chartered Accountants of India in practice shall be deemed to be
guilty of professional misconduct if he accepts appointment as auditor of an entity in case the
undisputed audit fee of another chartered accountant for carrying out the statutory audit under
Companies Act or various other statutes has not been paid.
➢ As per the proviso, such prohibition shall not apply in case of a sick unit where a sick unit is defined
to mean “where the net worth is negative”.
Part III – Case Discussion
➢ In the given case, Mr. C accepted the statutory audit of M/s PSU Ltd., whose net worth is negative
for the year 2013-14.
Part IV – Conclusion
➢ In the instant case, though the undisputed fees are unpaid, Mr. C would still not be guilty of
professional misconduct since the M/s PSU Ltd. is a sick unit having negative net worth for the year
2013-14.

QNO Chapter VII- Audit Fees Unpaid Old Course – (N23R)
772.500 TITANIUM CNO -- PE.1760

Statutory Audit of Arihant Limited for the year 2021-22 was done by CA Acharya. Arihant Limited was in
existence since 2010. The relevant extract from books of account of Arihant Limited are as below:

Particulars As at 31.03.2023 (₹ in lakh) As at 31.03.2022 (₹ in lakh)
(Unaudited) (Audited)
Equity Share Capital 5.00 5.00
Reserve and Surplus (10.00) (8.00)
Provision for Audit Fees For FY 2021-22- 1.00 1.00
For FY 2022-23- 1.00

(Figures in bracket indicates negative values)

CA. Nemi accepted the Statutory Audit of Arihant Limited for the year 2022-23 in spite of the fact that as
on date of acceptance by CA Nemi, the audit fees of CA Acharya was unpaid.
Answer As per Chapter VII of Central Council Guidelines 2008, a member of the Institute in practice shall not accept
the appointment as auditor of an entity in case the undisputed audit fee of another Chartered Accountant
for carrying out the statutory audit under the Companies Act, 2013 or various other statutes has not been
paid:

Provided that in the case of sick unit, the above prohibition of acceptance shall not apply where a sick unit is
defined to mean “where the net worth is negative as at the end of any financial year accumulated losses
equal to or exceeding its entire net worth.

As Explanation 1 of the Chapter VII of Central Council Guidelines 2008, for the purpose, the provision for
audit fee in accounts signed by both — the auditee and the auditor along with other expenses, if any,
incurred by the auditor in connection with the audit, shall be considered as “undisputed audit fees”.

In the instant case, though the undisputed fees are unpaid, CA Nemi would still not be guilty of professional
misconduct since the Arihant Limited is a sick unit having negative net worth for the year 2022-23.

QNO Council General Guideline 2008--Fees from Other Assignments Old Course-- (M07E, M09R)
773.000 TITANIUM CNO – PE.1760 New Course—(SM23)

A is the auditor of Z Ltd., which has a turnover of ₹ 200 crore. The audit fee for the year is fixed at ` 50
lakhs. During the year, the company offers an assignment of management consultancy within the
meaning of Section 2(2)(iv) of the CA Act, 1949 for a remuneration of ` 1 crore. A seeks your advice on

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