--- title: An incoming auditor signed a company's accounts before shareholders approved the appointment. description: A chartered accountant signed a company's audit report before shareholders approved him as auditor, and never wrote to the auditor he was replacing. The Board found him guilty and fined him. case_number: BOD 710/2023 file_number: PR/154/2021/DD/01/2021/BOD/710/2023 forum: board-of-discipline institute: icai decided_on: 2024-05-30 punished_on: 2024-07-15 outcome: Fine clauses: Item (8) of Part I of the First Schedule; Item (9) of Part I of the First Schedule order_pdf: https://disc.icai.org/wp-content/uploads/2024/08/18.-BOD-710-2023.pdf published: 2026-09-09 author: Jainam Shah keywords: bod 710 2023, item 8 part i first schedule, item 9 part i first schedule, communication with retiring auditor, statutory auditor appointment, casual vacancy auditor, companies act section 139, board of discipline fine source: /icai/board-of-discipline/bod-710-2023 --- # An incoming auditor signed a company's accounts before shareholders approved the appointment. A chartered accountant's five-year term as a company's statutory auditor was drawing to a close, and another chartered accountant was lined up to take over. That successor signed the company's accounts before anyone with the authority to appoint him had actually done so.[^parties] ## What happened ```timeline A chartered accountant is auditing a private company under a five-year appointment made by its shareholders. His term is due to run through the current financial year. The company's board, without first putting the matter to a general meeting, resolves to bring in another chartered accountant to audit that year's accounts, on the footing that a vacancy has arisen because the outgoing auditor's term has not been renewed. The board tells the incoming auditor his firm has been appointed. On the strength of that board resolution alone, the incoming auditor signs the year's audit report. The very same day, the company writes to him again — this time to say his appointment is only being proposed, and asking for his consent ahead of a shareholders' meeting still to come. Roughly three weeks later, that meeting is held, and the shareholders approve the appointment for a fresh five-year term. Only then does the incoming auditor's appointment become valid in law — after the report bearing his signature has already been on file for weeks. Throughout, the incoming auditor never once writes to the auditor he is replacing. A complaint follows, the Board of Discipline finds him guilty on two of four charges, and a separate hearing fines him. ``` Two things decided the case, and both were about timing. The first was when the incoming auditor's appointment actually took legal effect. A company can appoint a fresh auditor to fill a genuine vacancy by a board resolution, but appointing an auditor for a full term is a decision for the shareholders, not the board. The board resolution came in October; the shareholders did not approve the appointment until a meeting roughly three months later. He had signed the audit report weeks before that meeting — on the strength of the board's resolution and nothing more. The second was what, if anything, he had written to the outgoing auditor. He never really disputed that the answer was nothing. His own written statement to the Board said so in as many words: > "Since there has been no written communication between us prior to undertaking the assignment, > the Complainant can conveniently claim that there was no communication with him before accepting > the assignment." (para 5) ## The two clauses Both sit in Part I of the First Schedule to the Chartered Accountants Act, 1949. - **Item (8)** — accepting a position as auditor previously held by another chartered accountant without first communicating with that auditor in writing.[^item8] - **Item (9)** — accepting an appointment as a company's auditor without first checking that the Companies Act's requirements for that appointment have actually been complied with.[^item9] The Board found the incoming auditor guilty under both. Two further allegations went nowhere: a charge that he had colluded with the company's management to secure the work was dismissed for want of anything on record to support it (para 8), and a charge that he had signed the audit report only after a Ministry of Corporate Affairs circular extended the filing deadline was found not maintainable — the complainant never explained what misconduct that timing was supposed to show (para 9). ## What the respondent said On the missing communication, his case was that the outgoing auditor had a personal grievance against one of his firm's partners and would not cooperate — there was no outstanding fee and no red flag to explain the silence. He said he had tried anyway: phone calls, requests for meetings, and a no-objection certificate sent to an employee of the company that was never signed and returned. He offered that employee as a witness to those efforts. Failing to put anything in writing, he argued, was at most a procedural oversight, not a breach of the Code of Ethics (para 4.1–4.5). On the appointment, he argued that signing an audit report does not itself require verifying compliance with the Companies Act sections governing appointment and removal — those sections concern a different act entirely. He also disputed that there had been any defect in his appointment to begin with: the outgoing auditor's five-year term had run its course at the annual general meeting that year, a special resolution not to reappoint him was passed the same day, and the vacancy that opened up was filled by the board under the casual-vacancy provisions of the Companies Act, with the later shareholders' meeting only approving the accounts and his appointment for future years — not, on his reading, curing anything about the year already signed (para 4.6–4.8). ## What the Board held On communication, the Board did not need to go beyond his own submission. He had conceded, in terms, that none had taken place, and the Board treated that as a straightforward admission of Item (8). On the appointment, the Board traced the sequence of company resolutions and letters in detail and reached a conclusion he had not offered: that the appointment became legally effective only at the shareholders' meeting, not at the board meeting that came first. > "Thus, from the perusal of the above course of transaction, it is manifestly clear to the Board > that Respondent has legally been appointed as statutory auditor on 20th January 2021 by the > Company and Respondent signed the Audit Report on 30th December 2020." (para 7) > "In the light of above, it is transparent to the Board that Respondent signed the documents > before being appointed as statutory auditor." (para 7) That gap — a signature that came before the appointment that was meant to authorise it — was enough for the Board to hold him guilty under Item (9) as well, and it concluded: > "Thus, in conclusion in the considered opinion of the Board, the Respondent is held 'GUILTY' of > Professional Misconduct falling within the meaning of Items (8) and (9) of Part-I of the First > Schedule to the Chartered Accountants Act, 1949." (para 11) ## The order > "Thus, upon consideration of the facts of the case, the consequent misconduct of [the > Respondent] and keeping in view his representation before it, the Board decided to impose a fine > of Rs.25,000/- (Rs. Twenty-Five Thousand only) upon him." (para 3)[^bracket] A fine sits above a reprimand and below removal from the Register on the Board's scale of punishment.[^fine] The Board reached the finding of guilt at one hearing and, having given him a further opportunity to be heard before deciding the punishment, fixed the fine at a second, later sitting.[^coram] ## Why it matters *This section is ours, not the Board's.* **A board resolution is not the same thing as a valid appointment.** Only the shareholders can appoint a company's auditor for a full term; a board can only fill a genuine casual vacancy. Wait for the general meeting that actually ratifies your appointment before you sign anything on the strength of it. **What you write to the Institute can convict you on its own.** His own explanation for the missing letter — that the outgoing auditor could otherwise "conveniently claim" there had been no communication — was read as a plain confession. Say what happened; do not argue around it. **Phone calls and meetings are not communication under Item (8).** The clause requires writing, and the Code of Ethics asks for proof of delivery — registered post, an acknowledged hand delivery, a reply from a registered email address, or a UDIN. An unreturned document sent to an employee satisfies none of it. This summarises a public order and links the primary source. It is general information, not legal or professional advice. [^parties]: The complainant was *CA. Manoj Kumar Jain (M. No. 075666)*, partner of *M/s. Manoj Santosh & Co., Chartered Accountants*. The respondent was *CA. Nishant Agarwal (M. No. 437469)*, partner of *M/s Amit S. Agarwal & Co., Chartered Accountants*. Both firms were based in Ghaziabad. The company at the centre of the case was M/s Fortune Machines Private Limited. [^item8]: Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949 makes a member guilty of professional misconduct if he accepts a position as auditor previously held by another chartered accountant without first communicating with that auditor in writing. [^item9]: Item (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949 makes a member guilty of professional misconduct if he accepts an appointment as auditor of a company without first ascertaining that the Companies Act's requirements for that appointment have been complied with. [^bracket]: The order's operative paragraph names the respondent and his membership number directly before switching to "him." This page substitutes "[the Respondent]" for both; nothing else in the quotation is altered. [^fine]: Section 21A(3) gives the Board of Discipline a graduated set of punishments — reprimand, a fine, and removal of the member's name from the Register for a limited period — of which this order used the fine. Check the current sub-section before relying on any figure; the amounts have been amended over time. [^coram]: The findings, delivered after a final hearing held in person at ICAI Bhawan, New Delhi, were signed by CA. Rajendra Kumar P (Presiding Officer) and Ms. Dolly Chakrabarty (Government Nominee), and dated 30th May 2024. The same two members, sitting through video conference, passed the punishment order on 15th July 2024, after a communication earlier that month gave the respondent the opportunity to be heard, which he took up.