Criminal Liabilities of an auditor | Reliefs & Remedies
Table of Contents
Criminal Liabilities of an Auditor under Companies Act
The following are the 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.
Criminal Liabilities of an Auditor under Income Tax Act
The following are the criminal liabilities of an auditor 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, misfeasance, default, breach of contract etc, they become void and the auditor cannot escape from liability.
Whatever written is just in Book and Law. The Practicability of Application is far away. Simple example is see Accounts of Ratnamani Metals & Tubes Limited web and accounts of 31.03.2013 page no 26. There is an Increase in Profit by Rs 98.36 Lakhs due to Change in Valuation of Closing Stock of Raw Material from Cost Method to Weighted Average Method. Reported in Notes only as “Increase in Profit By Rs 98.36 Lacs and Value of Closing Stock”. No qualification.? Compliance of Companies Act , Fraud In Accounts forget it for ever? This is not the only one year . But in 31.10.1992 and 31.03.1994 Rs 40 Lacs and Rs65 Lacs were entered in Accounts the same profit was deleted as Taxable Income under Tax Audit Report? Out of these entries Declared and Paid Dividend? No reporting at all Qualification etc? CR Sharedalal & Co; Company Chartered Accountant of Ahmedabad reported. Not only this but in Prospectus issued in 1994 for public issue of shares Rs 40 Lacs entered in 31.10.1992 as profit and no compliance Reporting in Prospectus? Out of this profit declared and paid dividend, got the issue eligible for premium for issue of shares? Also See Judgment in High Court of Gujarat Company petition No 17/1996 also Justice Mohit S Shah noted fraud in merger petition No order for remarks ?