Criminal Liabilities of an Auditor
Under Companies Act
1. For False Records: Section 539 of Companies Act, prescribes severe criminal punishment; if any false or fraudulent entry is made in any register, books of accounts or records of the company. The officers of the company who are found guilty of the offense including the auditor will be punishable with imprisonment and shall also be liable to fine.
2. For False Statement: If an auditor makes any false statement or omits any material fact known to him intentionally, in any Return, certificate, report, balance sheet, prospectus etc, under Section 628 of the Companies Act, he is punishable with imprisonment and also be liable to fine.
3. For Willful Default: If an auditor intentionally makes a default in presenting the auditor’s report or signing a document, he shall be punishable under Section 233 of the Companies Act, with fine.
Under Income Tax Act
1. For furnishing false Income: If any person induces another person to submit false accounts, statement or declaration relating to any income chargeable to Income Tax, such person is punishable under 278 of the Income Tax Act with rigorous imprisonment.
2. For False report: If income tax authorities require an auditor to submit a report on the accounts, records, statements and documents of the assessee whom he represents, and if the auditor knowingly submits his report containing false statements, he is liable for rigorous imprisonment.
Indian Penal Code
Indian Penal Code prescribes simple imprisonment up to six months with fine for furnishing false information. A false statement or declaration on oath attracts imprisonment up to 7 years and fine
Reliefs and Remedies for Criminal liabilities of auditors
1. If an auditor is found technically guilty, but if he proves that the had acted reasonably and honestly, the court may relieve the auditor in certain cases.
2. If an auditor is found by the court not guilty of negligence, default, misfeasance, etc., the company may compensate the auditor for any liability incurred by him in defending such proceedings.
3. However, if the Articles of Association of the company or an agreement entered into by the auditor and the company or any other instruments indemnify an auditor against legal liability for negligence, default, misfeasance, breach of contract etc, they become void and the auditor cannot escape from liability.