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BOD 699/2023Fine

An incoming auditor asked for a no-objection certificate a year late. The appointment rested on a tampered resolution.

7 min readJainam Shah

An incoming auditor asked for a no-objection certificate more than a year after taking over a company's audit, and relied on a resolution that looked tampered. The Board fined him ₹10,000.

Held
FineGuilty of professional misconduct
Forum
Board of Discipline (First Schedule)
Clauses
Item (8) of Part I of the First Schedule · Item (9) of Part I of the First Schedule
Decided
punished
File no.
PR/89/2021/DD/83/2021/BOD/699/2023
Source
Original order (PDF)

A Kollam chartered accountant had audited a private company for five years running. Another chartered accountant from the same city took over the audit the following year, and how he went about it is what brought them both to the Board of Discipline.1

What happened#

A Kollam chartered accountant audits a private distribution company for five years running, under an appointment for a fixed term. Another chartered accountant from the same city later takes over the audit for the following year.
The incoming auditor gives the company his consent to act, and in time signs and delivers the audit report. He does this without first writing to the outgoing auditor to find out whether there is any professional reason he should not take on the assignment.
Only more than a year after accepting the appointment does the incoming auditor write asking for a no-objection certificate. He tries to deliver the letter by hand, but the outgoing auditor's office is closed each time he calls, and it eventually reaches him by post — after the audit report has already been signed.
The appointment itself rests on a shareholders' resolution fixing the outgoing auditor's term. The two chartered accountants produce different versions of it: the outgoing auditor's copy records a five-year term, the incoming auditor's copy a three-year term, with signs that it has been altered.
The outgoing auditor complains to the Institute. A Board of Discipline finds the incoming auditor guilty on both counts, and at a separate hearing weeks later fines him ten thousand rupees.

Two details decided the case.

The first was timing. The incoming auditor gave the company his consent to act on 25th August and 14th September 2019, but did not write to the outgoing auditor asking for a no-objection certificate until 27th November 2020 — more than a year later (para 5). He tried to hand-deliver the letter, but the outgoing auditor's office was closed each time he called; it eventually reached the outgoing auditor by speed post on 19th December 2020. By then the audit report had already been signed, on 8th December 2020 (para 6).

The second was a document. The outgoing auditor's own appointment turned on a resolution fixing his term. He produced a copy dated 30th September 2015 recording a five-year term. The incoming auditor produced a different version of the same resolution, recording three years, and it showed visible signs of tampering (para 7).

The two clauses#

Both sit in the First Schedule to the Chartered Accountants Act, 1949, which is why the Board of Discipline heard the case rather than the Disciplinary Committee.2

  • Item (8) of Part I — communicating with the auditor being replaced before accepting an audit they already held. It exists to give the outgoing auditor a chance to raise anything the incoming auditor should know before stepping in.3
  • Item (9) of Part I — accepting a company audit without confirming that the appointment itself was validly made.4

The Board found the incoming auditor guilty under both: the no-objection certificate came too late to serve its purpose, and he had relied on an appointment resolution he should have verified against the company's own records rather than accepted at face value.

What the respondent said#

The Complainant did not appear at the final hearing and asked the Board to decide the matter on his written submissions; only the incoming auditor's counsel argued the matter in person (para 4). Two points from his side made it into the Board's own account of the facts.

On the delay, he had tried to communicate before the audit was finished: he attempted to deliver the letter by hand more than once, and it went by post only because the outgoing auditor's office was closed each time (para 6).

On the resolution, his position was that the outgoing auditor's own term ran three years, not five, going by the document he held — a different version of the same resolution from the one the outgoing auditor produced (para 7).

What the Board held#

On the delay, the Board held that seeking a certificate more than a year after accepting the assignment, and receiving it only after the audit report had already been signed, could not count as the communication Item (8) requires (para 5–6).

On the resolution, the Board held that a document at odds with another copy of itself, and showing signs of tampering, obliged the incoming auditor to check the company's own minutes book rather than rely on the copy in front of him:

This negligence and reliance on falsified information renders the Respondent 'Guilty' of Professional Misconduct under Item (9) of Part-I of First Schedule to the Chartered Accountant Act 1949 (para 8)

It concluded:

the Respondent is held 'Guilty' of Professional Misconduct falling within the meaning of item (8) and item (9) of Part-I of the First Schedule to the Chartered Accountants Act, 1949 (para 10)

The order#

At the punishment hearing four weeks later, the incoming auditor appeared over video conference, confirmed he had received the Findings, and made oral and written submissions.5 The Board then held:

Thus, upon consideration of the facts of the case, oral as well as written submissions, the consequent misconduct of [the Respondent], the Board decided to impose a Fine of Rs. 10,000/- (Rs. Ten Thousand only) upon [the Respondent] (para 3)6

A fine sits in the middle of the Board's punishment scale — heavier than a reprimand, lighter than removal from the Register.7

Why it matters#

This section is ours, not the Board's.

A no-objection certificate sought after the work is done protects nobody. The Board treated a certificate sought more than a year into the engagement, and received after the audit report was signed, as no communication at all. Write to the outgoing auditor before you accept the assignment, not after you've delivered it.

A document that conflicts with another copy of itself is a reason to check the minutes book, not to pick a side. The incoming auditor's resolution differed from the outgoing auditor's and showed signs of tampering; verifying it against the company's own records was his job, not an afterthought.

Attempting to deliver a letter is not the same as delivering it on time. Failed hand-delivery attempts did not excuse a certificate sought more than a year late — the Board measured the delay, not the effort. Build in enough time to communicate before the audit proceeds, not while it does.

This summarises a public order and links the primary source. It is general information, not legal or professional advice.

Footnotes#

  1. The complainant was CA. V. Radhakrishna Pillai (M. No. 018300) of Radhakrishnan & Associates, Kollam. The respondent was CA. Vijaya Mohan Valiathan (M. No. 028648) of Issac & Suresh, Kollam. ↩

  2. First Schedule matters go to the Board of Discipline; Second Schedule matters, and matters falling under both, go to the Disciplinary Committee. The two carry very different punishment ceilings. ↩

  3. Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949, requires a chartered accountant to communicate with the retiring auditor, in writing, before accepting a position as auditor previously held by another member. ↩

  4. Item (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949, covers accepting an appointment as auditor of a company without first ascertaining that the appointment has been made in accordance with the statutory requirements. ↩

  5. The findings, dated 27th August 2024, were signed by CA. Rajendra Kumar P (Presiding Officer), Ms. Dolly Chakrabarty (Government Nominee) and CA. Priti Savla (Member), sitting in person. The punishment order, passed on 25th September 2024 after a hearing conducted by video conferencing, was signed by a two-member Board of the same Presiding Officer and Government Nominee, without CA. Priti Savla. ↩

  6. The order's operative paragraph names the respondent directly, twice, in place of "him": "the consequent misconduct of CA. Vijaya Mohan Valiathan (M. No. 028648) ... upon CA. Vijaya Mohan Valiathan (M. No. 028648)." This page substitutes "[the Respondent]" for both instances of the name and membership number; nothing else in the quotation is altered. ↩

  7. Section 21A(3) gives the Board of Discipline a graduated set of punishments — reprimand, removal of the member's name from the Register for a limited period, and a fine — of which this order used the fine. Check the current sub-section before relying on any figure; the amounts have been amended over time. ↩

Written by Jainam Shah. Found guilty under Item (8) of Part I of the First Schedule and Item (9) of Part I of the First Schedule; the Board ordered a fine. General information, not legal or professional advice — read the order itself before relying on it.

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