PENALTIES STRINGENT ON AUDITORS UNDER COMPANY ACT 2013

On going through the audited balance sheets that I receive from my clients for filing, I feel that I shall fail in my duties towards my professional colleagues if I refrain from circulating this mail. Under the new Act, the duties of auditor are far more wider than ever and refer to much more than is stated in section 143 of the Companies Act 2013. The provisions mutatis mutandis apply to a CS. The provisions are so scaring that a CA or CS may like to quit the practice or atleast eschew clients who are not interested in cooperating in the matter of audit or filings. Suggest not to sign any form or audit report if there is any dispute in between the directors. This is more often in companies which are owned by family members. I am a witness to the frequent police visits to ROC office or often a Car with name plate “Crime Branch” parked outside the said office here in Delhi. There are enough number of unreported cases where the professional has been made whipping boy for no reason. Apart from Companies Act 2013, a CA or CS may very easily be made an accused under various sections of IPC. Friends please understand that we do not possess so much of unity or immunity as is actually enjoyed by advocates. In the hour of distress neither anyone from our fraternity nor the institute come forward for any help. On the contrary the institute would initiate inquiry against the member for professional misconduct should there be a casual complaint against the member. So it’s better to honest towards ones work and avoid any unpleasant future event. PENALITIES ON AUDITORS Read on……… If the auditor has contravened any of his duties, he shall be punishable as below: • Required to refund the remuneration. • Pay damages to the company, statutory bodies/authorities or any other person for losses arising as a result of incorrect or misleading statements in his audit report. • Pay a fine which shall not be less than Rs 25,000 but which may extend to Rs 5 lakhs. Further, if the above contravention is with an intention to deceive the company or its shareholders or its creditors, tax authorities or any other person concerned or interested in the company, then he is also punishable with an imprisonment of a term which may extend up to one year and a minimum fine of Rs 1 lakh, which may extend to Rs 25 lakhs.  Where, in case of audit of a company being conducted by an audit firm, it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal as provided in this 2013 Act or in any other law for the time being in force, for such act shall be of the partner or partners of the audit firm and of the firm jointly and severally and such partner or partners of the audit firm shall also be punishable in the following manner: • Imprisonment for a term not less than six months and may extent up to ten years, provided that where the matter involves public interest, the minimum term will be three years; and • Fine for an amount ranging from one to three times the amount involved in the fraud Similarly where a person has subscribed for securities of a company on any statement included, or the inclusion or omission of any matter, in the prospectus which is misleading and has sustained loss or damage as a consequence, the company and certain specified person (includes director, promoter and experts) are liable to pay compensation to every person who has sustained loss or damage. Experts may include auditors. Where it is proved that a prospectus has been issued with intent to defraud the applicants for the securities of a company or any other person or for any fraudulent purpose, every person referred to the above shall be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by any person who subscribed to the Securities.



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