Suspended ca signing financial statements of listed co.
This query is : Resolved
05 August 2015
Dear Sir/Ma'am, Plz help me on this...
If a CA is suspended by ICAI under professional misconduct for a tenure of 3yrs w.e.f 2011 and during that period he signs the Financial Statements of a Listed and an unlisted company as an auditor for F.Y. 2011-12, F.Y. 2012-13 and F.Y. 2014-15, what will be the obligations and the duty of the companies whose Financial Statements he has signed?
Does the books of accounts become void ab initio?
Are the companies required to get their books reaudited?
Facts of the case:
1. The companies were not aware of his suspension and disqualification for appointment as an auditor.
2. The companies have obtained the auditor's acceptance at the time of his reappointment(as per Co. Act, 1956) and ratification(as per Co. Act, 2013).
Also, please specify if there is any penalty specified under the SEBI guidelines as well (as one of the companies is listed)
If a CA is suspended by ICAI under professional misconduct for a tenure of 3yrs w.e.f 2011 and during that period he signs the Financial Statements of a Listed and an unlisted company as an auditor for F.Y. 2011-12, F.Y. 2012-13 and F.Y. 2014-15, what will be the obligations and the duty of the companies whose Financial Statements he has signed?
Does the books of accounts become void ab initio?
Are the companies required to get their books reaudited?
Facts of the case:
1. The companies were not aware of his suspension and disqualification for appointment as an auditor.
2. The companies have obtained the auditor's acceptance at the time of his reappointment(as per Co. Act, 1956) and ratification(as per Co. Act, 2013).
Also, please specify if there is any penalty specified under the SEBI guidelines as well (as one of the companies is listed)
05 August 2015
Yup dear both the Company and the Auditor are guilty in the above situation. The books of the company must be re-audited by a qualified member of ICAI.
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05 August 2015
Thanks Mr. Sandeep, can you please tell me what penalties shall be levied under the company in this case??
Also, is there any penalty stated by SEBI(as one of the companies is listed in NSE)?
Also, is there any penalty stated by SEBI(as one of the companies is listed in NSE)?
05 August 2015
Thanks Mr. Sandeep, can you please tell me what penalties shall be levied under the company in this case??
Also, is there any penalty stated by SEBI(as one of the companies is listed in NSE)?
Also, is there any penalty stated by SEBI(as one of the companies is listed in NSE)?
26 July 2025
This is a serious and complex situation involving professional misconduct and regulatory compliance. Here's a detailed breakdown addressing your queries:
---
### 1. **Effect of Financial Statements Signed by a Suspended CA**
* **Signing Financial Statements by a Suspended CA is illegal and invalid** as the CA is disqualified to act as an auditor during suspension.
* The **Financial Statements signed by such a CA are considered unaudited and not in compliance with the Companies Act and SEBI regulations.**
* However, the **books of accounts themselves are not void ab initio.** The accounting records maintained by the company remain valid unless fraud or irregularities are found.
* The **audited financial statements certified by the suspended CA would be considered invalid and require re-audit by a qualified, eligible CA.**
---
### 2. **Obligations of the Companies**
* **Immediate Action:**
* Companies should get the affected financial years re-audited by a qualified, non-suspended auditor.
* File revised financial statements with the Registrar of Companies (ROC) and stock exchanges (for listed companies), if required.
* Disclose the matter to the Board, shareholders, and regulators (ROC and SEBI).
* **Statutory Compliance:**
* Under the **Companies Act, 2013**, the company is responsible for ensuring appointment of a qualified auditor.
* The company is liable for any consequences due to appointment of a disqualified auditor, especially if it was negligent.
---
### 3. **Penalties under Companies Act, 2013**
* **Section 140(5)** of Companies Act, 2013:
If an auditor acts despite being disqualified (like under suspension), the auditor shall be punishable with a fine which may extend to Rs. 1,00,000 and further fine which may extend to Rs. 5,00,000 for every day of default.
* **Section 99 and 100**:
Company and its officers responsible may be penalized for failure to comply with the appointment provisions.
* The **company and its officers may also be penalized for not exercising due diligence** in ensuring auditor's eligibility.
---
### 4. **SEBI Regulations and Penalties**
* SEBI mandates that **listed companies appoint only eligible auditors**, as per **SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015** and **SEBI (LODR) circulars**.
* Signing of financials by a suspended CA is a violation of SEBI regulations.
* Penalties can include:
* **Monetary fines** on the company and the officials responsible.
* **Adverse observations by stock exchanges**, including suspension of trading.
* **SEBI may issue show-cause notices** and impose penalties for non-compliance under **SEBI Act, 1992**.
* SEBI can also direct re-audit and filing of revised financials.
---
### 5. **Recommendations for Companies**
* **Immediately appoint a qualified auditor** to re-audit the affected years.
* File **revised financial statements** and make disclosures to ROC and stock exchanges.
* Cooperate with ICAI and SEBI investigations.
* Review internal processes to ensure **strict compliance with auditor eligibility norms**.
---
### Summary Table
| Issue | Consequence/Action |
| ------------------------------------------- | ------------------------------------------------------------------------------------------------ |
| Financial Statements signed by suspended CA | Considered invalid, require re-audit by qualified auditor |
| Books of accounts | Not void, remain valid unless fraud detected |
| Company obligation | Must get re-audit, file revised reports, disclose to regulators |
| Penalties on Auditor | Fine up to Rs. 1,00,000 + Rs. 5,00,000/day under Companies Act |
| Penalties on Company | Penalties for non-compliance under Companies Act and SEBI; show-cause notices and fines possible |
| SEBI action | Monetary penalties, trading suspension, enforcement actions |
---
If you want, I can help draft a compliance plan or a disclosure letter for the company in such a case. Would that be useful?
---
### 1. **Effect of Financial Statements Signed by a Suspended CA**
* **Signing Financial Statements by a Suspended CA is illegal and invalid** as the CA is disqualified to act as an auditor during suspension.
* The **Financial Statements signed by such a CA are considered unaudited and not in compliance with the Companies Act and SEBI regulations.**
* However, the **books of accounts themselves are not void ab initio.** The accounting records maintained by the company remain valid unless fraud or irregularities are found.
* The **audited financial statements certified by the suspended CA would be considered invalid and require re-audit by a qualified, eligible CA.**
---
### 2. **Obligations of the Companies**
* **Immediate Action:**
* Companies should get the affected financial years re-audited by a qualified, non-suspended auditor.
* File revised financial statements with the Registrar of Companies (ROC) and stock exchanges (for listed companies), if required.
* Disclose the matter to the Board, shareholders, and regulators (ROC and SEBI).
* **Statutory Compliance:**
* Under the **Companies Act, 2013**, the company is responsible for ensuring appointment of a qualified auditor.
* The company is liable for any consequences due to appointment of a disqualified auditor, especially if it was negligent.
---
### 3. **Penalties under Companies Act, 2013**
* **Section 140(5)** of Companies Act, 2013:
If an auditor acts despite being disqualified (like under suspension), the auditor shall be punishable with a fine which may extend to Rs. 1,00,000 and further fine which may extend to Rs. 5,00,000 for every day of default.
* **Section 99 and 100**:
Company and its officers responsible may be penalized for failure to comply with the appointment provisions.
* The **company and its officers may also be penalized for not exercising due diligence** in ensuring auditor's eligibility.
---
### 4. **SEBI Regulations and Penalties**
* SEBI mandates that **listed companies appoint only eligible auditors**, as per **SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015** and **SEBI (LODR) circulars**.
* Signing of financials by a suspended CA is a violation of SEBI regulations.
* Penalties can include:
* **Monetary fines** on the company and the officials responsible.
* **Adverse observations by stock exchanges**, including suspension of trading.
* **SEBI may issue show-cause notices** and impose penalties for non-compliance under **SEBI Act, 1992**.
* SEBI can also direct re-audit and filing of revised financials.
---
### 5. **Recommendations for Companies**
* **Immediately appoint a qualified auditor** to re-audit the affected years.
* File **revised financial statements** and make disclosures to ROC and stock exchanges.
* Cooperate with ICAI and SEBI investigations.
* Review internal processes to ensure **strict compliance with auditor eligibility norms**.
---
### Summary Table
| Issue | Consequence/Action |
| ------------------------------------------- | ------------------------------------------------------------------------------------------------ |
| Financial Statements signed by suspended CA | Considered invalid, require re-audit by qualified auditor |
| Books of accounts | Not void, remain valid unless fraud detected |
| Company obligation | Must get re-audit, file revised reports, disclose to regulators |
| Penalties on Auditor | Fine up to Rs. 1,00,000 + Rs. 5,00,000/day under Companies Act |
| Penalties on Company | Penalties for non-compliance under Companies Act and SEBI; show-cause notices and fines possible |
| SEBI action | Monetary penalties, trading suspension, enforcement actions |
---
If you want, I can help draft a compliance plan or a disclosure letter for the company in such a case. Would that be useful?
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