COUNCIL OF INSTITUTE OF CHARTERED ACCOUNTANTS OF Vs. V RAJARAM OF V RAJARAM AND CO CHARTERED ACCOUNTANTS

JUDGEMENT

(1.) This is a reference to us under S. 21(2) of the Chartered Accountants Act on the report of the Disciplinary Committee of the Council of the Institute of Chartered Accountants of India in proceedings taken against the respondent auditor on a complaint preferred by the Central Government in the following circumstances. The respondent is a member of a firm of Chartered Accountants in Madras, who were appointed auditors of the Adambakkam Janopakara Saswatha Nidhi Ltd., carrying on business in Alandur. The audit related to the period ending 31st March 1957. The actual audit was done by V. Rajaram the respondent, a partner of the audit firm. In the audit report by the respondent dated 31st May 1957, we find the following statement:

(2.) The respondent submitted that he had accepted the report of the special examiners appointed by the Board of Directors in accordance with Art. 103 cited above and that he had clearly stated in the report that he had not himself verified the securities and the documents relating to the book debts. He submitted that in doing so he was only acting in accordance with the practice prevalent in the matter of audit of such institutions, that is, Nidhis, and was under a bona fide belief that in view of Art. 103 of the Articles of Association of the company, he was entitled to rely upon the certificate of the special examiners in the matter of the verification of the securities. The respondent pleaded therefore that he had acted with reasonable care and diligence and he was not guilty of any misconduct under cl. (q) of the Schedule to the Act.

(3.) The Disciplinary Committee of the Council held that the fact that the company had provided for internal check for the purpose of verifying the securities would not absolve the auditor from doing what was undoubtedly one of his duties, namely, to himself verify the securities. The committee was unable to find a universal practice of the auditor placing reliance on the report of the special examiners appointed by the company, but was willing to accept that there were instances in which that practice was being followed. The Committee was, however, clear on this point, namely, that even if such practice was in vogue, it was not a correct practice, and the duty of an auditor in regard to the verification of assets, which is an onerous duty, cannot be deemed to be sufficiently discharged by not doing that duty, so to say, and by relying on the report of any person or persons appointed by the company itself to conduct an internal check. The Committee concluded thus: