Audit firms better watch out. The Centre has now done away with a rule (under the company law) that devolved any criminal liability of any audit firm only on the partner who acted in a fraudulent manner or abetted or colluded in any fraud.

This means that the entire audit firm, either jointly or severally, along with the partner concerned, will now have to pay up for the penalties arising under the company law for any fraudulent act of an audit partner, say company law experts.

Speaking to BusinessLine , former CA Institute President G Ramaswamy said that an audit firm now is liable for all the criminal and civil financial penalties arising out of Companies Act, 2013.

“Earlier, it was restricted only to the partner who acted in a fraudulent manner or abetted or colluded in fraud... Now the firm is liable for all the financial liability. This will lead to creation of joint and several liability on all the partners of the firm,” Ramaswamy said.

At the same time, he also maintained that the latest Corporate Affairs Ministry move (omitting rule 9 in the Companies (Audit and Auditors) Rules, 2014 had no bearing on the disciplinary proceedings under the CA Act, 1949. “The partner in charge will continue to be liable under these proceedings,” Ramaswamy said.

In what is seen as a compliance relief for companies, the Centre has now removed the requirement of getting the appointment of an auditor ratified at every Annual General Meeting of the company.

Compliance relief

Once an auditor is appointed for five years, there will be no need to get the appointment ratified by shareholders every year at the AGM, company law experts said.

If the auditor has to be removed, there is always a process for his removal and requiring yearly ratification to continue as an auditor is seen as a compliance burden in certain quarters, they said.

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