- Where an auditor resigns as an auditor of a Company or does not offer himself for reappointment as auditor of such Company, he shall send a communication, in writing, to the Board of Directors of the Company giving reasons thereof, if he considers that there are professional reasons connected with his resignation or not offering himself for re-appointment which, in his opinion, should be brought to the notice of the Board, and shall send a copy of such communication to the Institute. It shall be obligatory on the incoming auditor, before accepting appointment to obtain a copy of such communication from the Board and consider the same before accepting the appointment.
- Where an auditor, willing for reappointment has not been re-appointed, he shall file with the Institute a copy of the statement which he may have sent to the management of the Company for circulation among the shareholders. It shall be obligatory on the incoming auditor before accepting the appointment, to obtain a copy of such a communication from the Company and consider it, before accepting the appointment.
- The Ethical Standards Board(ESB) on a review of the communications referred to in paras (i) and (ii) may call for such further information as it may require from the incoming auditor, the outgoing auditor and the Company and make a report to the Council in cases where it considers necessary.
- In the case of removal of auditors by the Government, ESB will decide the procedure to be followed on consideration of the facts and circumstances of each case.
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Extension of the power and scope of functioning of the ESB.( by the Council at its 229th Meeting held in November, 2002)
1. To consider the cases of unjustified removal/non-reappointment of inconvenient auditor due to his alleged qualificatory remarks/queries
2. To adopt following additional procedures: -
- On receipt of a complaint from an auditor regarding his unjustified removal or non re-appointment due to alleged qualifications/queries, ESB may ask for the Statement of Reasons from the Complainant which as per complaint lead to his non reappointment/ removal.
- The Statement of reasons will be sent to the Incoming Auditor and Auditee for their Comments/ Observations. The Complainant and the Incoming Auditor will submit their Statement of Reasons, Observations/Comments thereof and other Submissions duly verified and in case of any wrong Submission, the members shall be liable for misconduct.
- The Incoming Auditor will be advised to consider the Statement of Reasons submitted by the Complainant while conducting the audit. The Incoming Auditor will be asked to submit a copy of his Audit Report for consideration of ESB which shall thereafter, examine the Statement of Reasons sent by the Complainant, the Observations/ Comments of Incoming Auditor and Auditee and the Audit Report of the Incoming Auditor to ensure that the issues raised by the Complainant have been adequately addressed to by the Incoming Auditor.
- It is clarified that this procedure is without prejudice to right of any person and legality of his appointment.
- To refer to the Disciplinary Section of the Institute cases of any negligence by the Incoming Auditor to treat the same as ‘Information’.
- To issue an order directing the incoming auditor to maintain status quo so far as payment of undisputed fee of the Complainant is concerned.
- To issue interim order, in appropriate cases.
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