Liabilities of Auditor Flashcards
Mr. A, a newly qualified CA started his practice, wants to specialize in Audits of corporates and requires your advice on criminal liabilities of an auditor under the Companies Act, 2013. Kindly guide him.
OR
Mr. Fresh, a newly qualified chartered accountant, wants to start practice and he requires your advice, among other things, on criminal liabilities of an auditor under the Companies Act, 2013. You are required to briefly explain the same to Mr. Fresh.
Criminal Liabilities under Companies Act, 2013:
The circumstances in which an auditor can be prosecuted under the Companies Act, and the penalties to which he may be subjected are briefly stated below:
• Criminal liability for Misstatement in Prospectus - As per Section 34 of the Companies Act, 2013, where a prospectus issued, circulated or distributed includes any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead, every person who authorizes the issue of such prospectus shall be liable under section 447. (fraud).
This section shall not apply to a person if he proves that such statement or omission was immaterial or that he had reasonable grounds to believe, and did up to the time of issue of the prospectus believe, that the statement was true or the inclusion or omission was necessary.
• Punishment for false statement - According to Section 448 of the Companies Act, 2013 if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement —
(a) which is false in any material particulars, knowing it to be false; or
( b) which omits any material fact, knowing it to be material,
he shall be liable under section 447.
Punishment for fraud: Sec. 447 of Companies Act, 2013 provides that, any person who is found to be guilty of fraud, involving an amount of at least Rs. 10 lakh or 1 % of the turnover of the company, whichever is lower shall be punishable with imprisonment for a term which shall not be less than 6 months but which may extend to 10 years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to 3 times the amount involved in the fraud.
Where the fraud involves an amount less than Rs. 10 lakh or 1 % of the turnover of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to 5 years or with fine which may extend to Rs. 50 lakh or with both.
It is also provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than 3 years.
