Ms.

Anki
taJai
swal
,Asst
.Pr
of.
,
NPGC,
LKO.

Li
abi
l
iti
esofanAudi
tor
AChar
ter
edAccount
anti
sassoci
atedwi
tht
hev
aluabl
epr
ofessi
on.

Li
abi
l
iti
esofanAudi
tor
:

AChart
eredAccount
antisassoci
atedwiththeval
uableprof
ession.Hi
spr
imarydut
yis
t
opresentarepor
tontheaccountsandstatementssubmitt
edbyhi mtomembersof
t
hecompany.Heisresponsi
blenotonlytothemember softhecompanybutal
sotothe
t
hir
dparti
esofthecompany,i
.e.
,credi
tor
s,banker
setc.

Normall
ytheli
abi
li
tyofaudit
orbasedontheworkdonebyhim asprof
essi
onal
account
antandcarr
youthiswor kduecar
e,caut
ionanddi
l
igence.Thenat
ureof
l
iabi
li
ti
esofanauditori
sdiscussedbel
ow:

1.Ci
vi
lLi
abi
l
ity
:

1.Li
abi
l
ityf
orNegl
i
gence:

Negl i
gencemeansbr eachofdut y.Anaudi
torisanagentoft heshar eholders.Hehast o
perform hisprof
essional duti
es.Heshouldtaker easonabl
ecareandski l
linthe
performanceofhi sduties.Ifhefail
stodoso, l
i
abi l
ityf
ornegli
gencear ises.Anauditor
willbeheldliabl
eiftheclienthassuffer
edlossduet ohisnegl
igence.Itshouldbenot ed
thatanaudi t
orwillnotbel i
abletocompensatet helossordamagei fhi snegligenceis
notpr oved.

2.Li
abi
l
ityf
orMi
sfeasance:

Misfeasancemeansbr eachoftrust.Ifanauditordoessomet hi
ngwrongfull
yinthe
perfor
manceofhi sdut i
esresulti
ngi nafinanciall
osstothecompany,heisguiltyof
misfeasance.Insuchacase, thecompanycanr ecoverdamagesfr
om theaudi t
oror
fr
om anyof fi
cerforbreachoft r
ustormi sfeasanceoft hecompany.Misf
easance
proceedingscanbei ni
tiat
edagainstt heauditorforanyuntr
uestat
ementi nthe
prospectusorintheev entofwindingupoft hecompany .

2.Li
abi
l
iti
esunderCompani
esAct

Thef
oll
owi
ngar
ethel
i
abi
l
iti
esofanaudi
torundert
hepr
ovi
sionsoft
heCompani
esAct
.
Ms.
Anki
taJai
swal
,Asst
.Pr
of.
,
NPGC,
LKO.

(
1)Li
abi
l
ityf
orMi
sst
atement
sint
hePr
ospect
us[
Sec.
35]
:

Anaudi t
orshal
lbehel
dliablet
ocompensateev er
ypersonwhosubscr ibesforany
sharesordebentur
esofacompanyont hefai
thoft heprospectuscontai
ninganuntr
ue
stat
ementmadebyhi m asanexpert
.Theauditorshall
bel i
abletocompensatehimfor
anylossordamagessustainedbyhi
m byreasonofanyunt ruestatementincl
uded
ther
ein.Theaudi
tormayescapefrom l
i
abil
it
yifhepr ov
est hat
:

 Thepr
ospect
usi
sissuedwi
thouthi
sknowl
edgeorconsent
.

 Hewit
hdrewhi
sconsent
,inwr
it
ingbef
oredel
i
ver
yoft
hepr
ospect
usf
or
r
egi
str
ati
on.

 Heshoul
dhavewithdr
awnhisconsentaf
teri
ssueofpr
ospectusbutbef
ore
al
l
otmentofshar
esandreasonabl
epubli
cnoti
cehasgivenbyhimregar
dingt
his.

(
ii
)Cr
imi
nal
Liabi
l
ityofAudi
torunderCompani
esAct
:
Ms.
Anki
taJai
swal
,Asst
.Pr
of.
,
NPGC,
LKO.

1.Unt
ruest
atementi
nPr
ospect
us[
Sec.
34]

Theauditori
sli
ablewhenheauthori
zesafalseoruntrueprospect
us.Whena
prospect
usincl
udesanyuntruestat
ement,
ev er
ypersonwhoaut hori
zestheissueof
prospect
usshallbei
mprisonedforaper
iodofsixmont hst
otenyearsorwit
haf ine,
whichmaybet hreet
imestheamountinvol
vedinthefr audorwit
hboth.

2.Noncompl
i
ancebyaudi
tor[
Sec.143and145]
:

Ift
heauditordoesnotcomplyregar
dingmakinghisrepor
torsigni
ngoraut hori
zat
ionof
anydocumentandmakeswi l
lf
ulnegl
ectonhispartheshallbepunishabl
ewi t
h
i
mpr i
sonmentuptooney earorwit
hfinenotl
essthan₹.25,000extendabl
et o
₹. 
5,
00,000.
Ms.
Anki
taJai
swal
,Asst
.Pr
of.
,
NPGC,
LKO.

3.Fai
l
uret
oassi
sti
nvest
igat
ion[
Sec.
217(
6)]
:

WhenCent ralGover
nmentappoi ntsanI nspectort
oi nv
esti
gat
etheaffai
rsoft
he
company ,
itisthedutyoftheauditortopr oduceall
books,documentsandtoprov
ide
assi
stancetot hei
nspectors.I
ftheauditorf ai
l
stodosoheshal lbepuni
shabl
ewith
i
mprisonmentupt ooney earandwi t
hfineupt o₹.
1,00,
000.

4.Fai
l
uret
oassi
stpr
osecut
ionofgui
l
tyof
fi
cer
s[Sec.
224]
:

Anaudit
orisrequi
redt
oassistpr
osecut
ionwhenCentral
Gover
nmenttakesanyact
ion
agai
nsttherepor
tsubmit
tedbytheI
nspector
.Ifhef
ail
stodoso,hei
sfoundguil
tyand
i
spunishabl
e.

5.Fai
l
uret
oret
urnpr
oper
ty,
booksorpaper
s[Sec.
299]
:

Whenacompanyi swounduptheaudi
tori
ssupposedtobepr esentandsubj
ecthi
mself
toapriv
ateexami
nati
onbythecour
tandisalsol
iabl
etoretur
nt othecour
tanyproper
ty,
booksorpapersr
elat
ingt
othecompany.I
ftheaudit
ordoesnotcompl y
,hemaybe
i
mpr i
soned.

6.Penal
tyf
orf
alsi
fi
cat
ionofbooks[
Sec.
336]
:

Anaudit
orwhendestr
oys,
mutil
ates,
alt
ersorf
alsif
iesorsecretsanybooksofaccount
ordocumentbel
ongi
ngtothecompany.Heshal
l bepunishablewit
himprisonmentand
al
sobeliabl
etofi
ne.

7.Pr
osecut
ionofaudi
tor[
Sec.
342]
:

I
nt hecour seofwindi
ngupofacompanybyt heTri
bunal
,ifi
tappearstotheTribunal
thatanaudi t
orofthecompanyhasbeenguil
tyofanoff
ence,itshal
lbethedutyoft he
auditortogiveal
lassist
ancei
nconnect
ionwitht
heprosecut
ion.Ifhefai
lst
ogi ve
assistanceheshallbeli
ablet
ofi
nenotl
essthan₹25,000extendableupto₹.
1,00,000.

8.Penal
tyf
ordel
i
ber
ateactofcommi
ssi
onoromi
ssi
on[
Sec.
448]
:

I
fanaudi tordeli
berat
elymakeastatementi
nanyreport,
cer
tif
icate,bal
ancesheet ,
prospectus,et
cwhi chisf
alseorwhi
chcontai
nsomissionofmat eri
alfact
s, heshal
lbe
punishablewithimpri
sonmentforaperi
odofsixmonthstoteny ear
sandf inenotless
thanamounti nvolv
edinfraudext
endabl
etothreet
imesofsuchamount .
Ms.
Anki
taJai
swal
,Asst
.Pr
of.
,
NPGC,
LKO.

3.Cr
imi
nal
Liabi
l
ityunderI
ndi
anPenal
Code

I
fanyper sonissuesorsi
gnsanycer
tif
icat
erelat
ingtoanyfactwhichsuchcert
if
icat
eis
fal
se,heispunishabl
easifhegavefal
seev i
dence.Accor
dingtoSec.197oft
heIndian
PenalCode,theaudit
orissi
mil
arl
yli
ableforfal
sif
icat
ionofanybooks,mater
ial
s,paper
s
thatbel
ongst othecompany.

4.Li
abi
l
ityunderI
ncomeTaxAct[
Sec.
278]

 Fortaxevasi
onexceeds₹.
1,00,
000,
rigor
ousi
mpr
isonmentofsi
xmont
hst
o
sevenyears.

 Aper sonwhoi nducesanot herpersontomakeanddel ivertot

heIncomeTax
authorit
iesaf alseaccount ,
stat
ementordecl arat
ionr
elati
ngtoanyincome
chargeablet otaxwhi chheknowst obefalse,heshal
lbeliabl
etofi
neand
i
mpr isonmentoft hreemont hstothreeyears.Anaudi
tormayal sobechar
gedi
n
caseofwr ongcer ti
ficati
onofaccount.

 ACharteredAccount
antcanrepr
esenthi
sclient
sbefor
etheIncomeTax
Aut
hori
ties.However
,ifhei
sguil
tyofmisconducthecanbedisqual
i
fiedf
rom
pr
acti
ci
ng.

 Anaudi
torcanf
acei
mpr
isonmentupt
otwoy
ear
sforf
urni
shi
ngf
alsei
nfor
mat
ion.

5.Li
abi
l
ityf
orPr
ofessi
onal
Misconduct

TheCharter
edAccountantAct,1949mentionsnumberofactsandomi ssionst
hat
comprisepr
ofessi
onalmisconducti
nrelat
iontoauditpr
act
ice.ThecouncilofI
CAImay
removetheaudit
or’
snamef orfiv
eyearsormor e,
ifhefi
ndsguil
tyofprofessi
onal
misconduct
.

6.Li
abi
l
ityt
owar
dsThi
rdPar
ti
es

Therearenumberofpersonswhor el
yupont hefi
nancialst
atementsaudit
edbythe
audit
orandenteri
ntot
ransacti
onswi t
hthecompanywi t
houtfurt
herenqui
ryvi
z.
credi
tor
s,banker
s,t
axauthori
ti
es,prospect
ivesharehol
ders,et
c.

1.Li
abi
l
ityf
orNegl
i
gence:

Ithasbeenhel
dint
hecourtt
hataudit
orisnotl
iabl
etot
hir
dpart
ies,
ast her
eisno
contr
actbet
weenaudi
torandthi
rdpart
ies.Heowesnodutyt
owardsthem.

2.Li
abi
l
ityf
orFr
auds:
Ms.
Anki
taJai
swal
,Asst
.Pr
of.
,
NPGC,
LKO.

Thethirdpar
ti
escanholdtheaudit
orli
able,
ifther
eisfr
audont hepartofaudi
toreveni
f
ther
eisnocontract
ualr
elati
onshi
pbetweenaudi t
orandthi
rdparti
es.I
ncertai
ncases
negl
igenceofaudit
ormayamountt ofr
audf orwhichhemaybehel dli
abletot
hird
part
ies.Buti
tmustbeprovedthataudi
tordidnotacthonest
lyandheknewabouti t.