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Q.  Whether communication with previous auditor is necessary in case of appointment as statutory auditor by nationalized and other banks?

A. Yes, Clause (8) of Part I of the First Schedule to the CA Act is equally applicable in case of nationalized and other banks and also to Government agencies.

Q. Whether communication by the Incoming auditor is mandatory with the previous auditor in respect of various audit assignments, like the concurrent audit, revenue audit, tax audit and special audits etc.?

A. Yes, the requirement for communicating with the previous auditor would apply to all types of audits viz., statutory audit, tax audit, internal audit, concurrent audit or any other kind of audit. The Council has laid down detailed guidelines in this regard and the same are appearing at pages 166-168 of Code of Ethics, 2009 .

Q. Whether a Chartered Accountant will be deemed to be guilty of professional misconduct if he accepts his appointment as an auditor immediately after intimating his appointment over the phone to the previous auditor?

A. Yes, the member would be held guilty of professional misconduct for the following reasons:
  • That he had failed to communicate with the retiring auditor in writing; and
  • That he did not wait for a reasonable length of time for a reply to be received from him.
Q. Whether a Chartered Accountant can accept an appointment as auditor of a company without first ascertaining from it whether the requirement of Section225 of the Companies Act, 1956 in respect of such appointment have been duly complied with?

A. No, as per Clause (9) of Part I of the First Schedule to the CA Act, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he accepts an appointment as auditor of a company without first ascertaining from it whether the requirements of Section 225 of the Companies Act, 1956 in respect of such appointment have been duly complied with. In this regard, the Council has laid down detailed guidelines that are appearing at pages 188-196 of Code of Ethics, 2009.

Q. Whether a statutory auditor can be appointed in the adjourned meeting in place of existing statutory auditor where no special notice for removal or replacement of the retiring auditor is received at the time of the original meeting?

A. No, if any annual general meeting is adjourned without appointing an auditor, no special notice for removal or replacement of the retiring auditor received after the adjournment can be taken note of and acted upon by the company, since in terms of Section 190(1) of the Companies Act, 1956, special notice should be given to the Company at least fourteen clear days before the meeting in which the subject matter of the notice is to be considered, the meeting contemplated in Section 190(1) undoubtedly is the original meeting.

Q. Whether a Chartered Accountant or a firm of Chartered Accountants can charge or offer to charge professional fees based on a percentage of turnover?

A.  No, in terms of Clause (10) of Part I of First Schedule to the CA Act it is not permitted to a Chartered Accountant or a firm of Chartered Accountants to charge fees on a percentage of turnover, except in the circumstances provided under Regulation 192 of the CA Regulations.
Regulation 192 reads as under:

“192. Restriction on fees

No Chartered Accountant in practice shall charge or offer to charge, accept or offer to accept, in respect of any professional work, fees which are based on a percentage of profits, or which are contingent upon the findings, or results of such work:

Provided that:
  • in the case of a receiver or a liquidator, the fees may be based on a percentage of the realization or disbursement of the assets;
  • in the case of an auditor or a co-operative society, the fees may be based on a percentage of the paid up capital or the working capital or the gross or net income or profits; and
  • in the case of a valuer for the purposes of direct taxes and duties, the fees may be based on a percentage of the value of the property valued.”
Q. Whether a Chartered Accountant in practice can engage in any business or occupation other than the profession of Chartered Accountancy ?

A. No, in terms of Clause (11) of Part I of First Schedule to the CA Act , in general, a Chartered Accountant in practice is not permitted to engage in any business or occupation other than the profession of Chartered Accountancy.
However, there are following exceptions to it:-
1.   A Chartered Accountant can be a director of a company (not being a managing director or a whole time director), unless he or any of his partners is interested in such company as an auditor.
2.   A Chartered Accountant in practice may engage in any business or occupation with the permission granted in accordance with a resolution of the Council.
Appendix (9) of CA Regulations contains the above Resolution under two heads (A) Permission granted generally (B) Permission to be granted specifically. (please refer pages 345-349 of the Code of Ethics, 2009 ).

Q. Whether a Chartered Accountant in practice is entitled to accept teaching assignment?

A. Yes, a Chartered Accountant in practice is allowed to accept teaching assignment in university, affiliated colleges, educational institution, coaching organization, private tutorship under the specific permission of the Council , provided the direct teaching hours devoted to such activities taken together do not exceed 25 hours a week .

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