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AUDITORS LIABILITY IN CASE OF UNLAWFUL ACTS

AUDITORS LIABILITY IN CASE OF UNLAWFUL ACTS

AUDITORS LIABILITY IN CASE OF UNLAWFUL ACTS OR DEFAULT BY CLIENTS:
The auditor’s basic responsibility is to report that whether in his opinion the accounts show a true and fair view and in discharging his responsibility he has to see as how the particular situations affect his position.
The general thinking with regards to unlawful acts or default by the clients appears to be that the auditor should not “aid or abet” but he is not under any legal obligation to disclose the offence.
The ICAI has considered the role of a chartered accountant in relation to taxation frauds by the assessee and has made the following major recommendations:

  • A professional accountant should keep in mind the provisions of section 126 of the EVIDENCE ACT whereby a barrister, an attorney or vakil is barred from disclosing any information made to him the course of and for the purpose of his employment.
  • If the fraud relates to the past years when the CA did not represent the client, the client should be advised to make a disclosure. The accountant should also be careful that the past disclosure should not affect the current tax matters.
  • In case of fraud relating to the accounts examined by the accountant himself, he should advise the client to make a complete disclosure. In case, client refuses tom do so, the accountant should inform him that he is entitled to dissociate himself from the case and he would make a report to the authorities that the accounts prepared and examined by him are unreliable on account of certain information obtained later.
  • In case of suppression in current accounts the clients should be asked to make a full disclosure. If he refuses to do so, the accountant should make a complete reservation in his report and should not associate himself with the return.
  • The question of liability of an auditor for unlawful acts or frauds by the clients should be the considered in the light of broad parameters given above. However, it appears that if an auditor was aware of any unlawful act have been committed by the client in respects of accounts audited by him and the unlawfulness was not rectified by proper disclosure, the auditor owes a duty to make the suitable report.if he does not, he may be held liable.

AUDITORS LIABILITY IN CASE OF UNLAWFUL ACTS

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