Professional Misconduct

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This discussion addresses potential professional misconduct by two Chartered Accountants, Mr. A and Mr. B, concerning the audit of Company X. Mr. A, a director and minority shareholder, allegedly prepared financial statements with significant irregularities, which Mr. B, the appointed auditor, signed without proper verification. The majority shareholder seeks legal recourse and discusses options like removing A and B from their positions and reporting the matter to the ICAI disciplinary committee for potential punishment under the Chartered Accountants Act.

Muralikrishna

Muralikrishna (Querist)
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14 March 2021 Mr. A is a CA holding certificate of practice, is also holds directorship (by virtue of being a minority shareholder) in a private company (Company X). He appoints his junior Mr. B, who has passed CA and holding a separate certificate of practice, as an auditor in the Company of holding directorship. All the finalization of books, closing entries, preparation of financial statements has been made by Mr. A and Mr. B puts his seal and signature on the Financial statement without verifying the authenticity of the financial statement and without the approval of the board. The other Board member of X company not informed of the signed financial statements and later efforts are made to convince the signed financial statements. There are many irregularities that have been observed in the preparation of financial statements like lack of carrying out inter-company reconciliations, failure to get the bank confirmations, adjustment is made to related party books with the approval of the board, etc.
Now, the Majority shareholder wants to have a legal remedy for the above problem. Whether the above members (A & B) can be punished for the above wrongdoing.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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14 March 2021 Majority share holders can convene AGM/EGM remove A as director of the company and B as auditor of the company. Apoint another director and auditor in the same meeting. New director and auditor will set right the wrong doings. That's the best way to immediately save the company rather than taking action it's a time consuming process.

Muralikrishna

Muralikrishna (Querist)
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15 March 2021 What if Mr. A is not agreeing for his removal ?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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15 March 2021 Majority of shareholders decisionis binding on him. No need for his agreeing the proposal.

CA Kushwanth AVSR

CA Kushwanth AVSR (Expert)
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24 March 2021 Yes they can be punished by complaining to disciplinary committee of ICAI and B is punishable as per Clause 2 of Part 1 of Second Schedule of The Chartered Accountants Act, 1949 and even A might be punishable as per Clause 2 of Part 4 of the First Schedule of The Chartered Accountants Act, 1949

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