1.13 Query
Effect of the reconstitution of a firm of chartered accountants on the audit assignment of a company accepted by it before reconstitution.
1. A private limited company, XY & Co. Pvt. Ltd., had a firm of chartered accountants, as auditors upto its financial year ending on 30th December, 1981. In 1982, this firm was changed and another firm ABCD & Co. was appointed to conduct the audit for the year 1986. The said appointment was intimated to the Registrar of Companies, New Delhi.
2.The audit for the year is still pending and has not even started. In the meantime, ‘B’ left ABCD & Company and the firm was reconstituted. The new firm is ACD & Company. No intimation was sent to the client company of this change in the constitution and no approval was sought from or accorded by the client company to the appointment of the new firm ACD & Co., as its auditors.
3. The querist has informed the Committee that he has discussed this issue with a number of his professional colleagues and most of them are of the opinion that as ‘B’ has left the firm, a casual vacancy has been created and the client company should fill that casual vacancy by appointing another firm of chartered accountants. The new firm is under no obligation to seek permission from any old firm.
4. The querist has sought the opinion of the Expert Advisory Committee on the following issues arising from the above:
a. Has a casual vacancy been created on the reconstitution of ABCD & Co., on ‘B’ leaving the firm?
b. Is the new firm ACD & Co., automatically entitled to reappointment?
c. If the client wishes to appoint the new firm of chartered accountants, does this firm need any permission from any audit firm, if so from whom?
Opinion February 19, 1988
1. The Committee notes that retirement is not the same thing as dissolution. On retirement of a partner, the firm continues to exist as such, which is not the case when a partnership is dissolve. Technically speaking retirement is a severance of the interest of a partner from the partnership business and is not tantamount to determination of the partnership as a whole; the other partners continue to carry on the business of the firm.
2.On the basis of the above, the opinion of the Expert Advisory Committee, on the issues raised by the querist in Para 4 of the query, is as below:
a. A casual vacancy does not arise merely on the reconstitution of the firm taking place on the retirement of a partner.
b. In view of (a), the question of reappointment of the reconstituted firm does not arise.
c. In view of (a) above, the question of obtaining permission from any audit firm does not arise.
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