News shortcuts: From the Courts | Top Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | Professional Updates | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax | PPE Safety Kit SITRA Approved | PPE Safety Kit
Tally.ERP 9: Your one-stop solution from accounting to compliance. Inspired by the way you work, Tally is designed to delight you.
Professional Updates »
 Guidance Note on the Companies (Auditor's Report) Order, 2020 issued by Auditing and Assurance Standards Board
 Announcement regarding Further extension of time by Securities and Exchange Board of India (SEBI) to July, 31, 2020 for submission of financial results for the quarter / half year financial year ending 31st March 2020 due to the continuing impact of the COVID-19 pandemic by CL&CGC ICAI
 ICAI is celebrating 72nd Chartered Accountants Day on 1st July 2020. Live Webcast on "Virtual National CA Summit 2020" on 29th June, 30th June & 1st July, 2020.
 Digital Accounting and Assurance Board, ICAI is organizing Live Webinar on Overview of SAP ERP on 03rd July, 2020 (Friday) from 4.00 to 6.00 PM
 IMPORTANT ANNOUNCEMENT May 2020 Exams - Opt-Out Window
 Professional Development Committee of ICAI is organising a Programme on "Young members mentorship" scheduled on 26th June & 27th June, 2020
 Digital Accounting and Assurance Board, ICAI is organizing Live Webinar on Overview of SAP ERP on 03rd July, 2020
 Launch of Article Placement & Industrial Training Portal
 ICAI to develop audit quality indicators; seeks to bolster competence of Indian audit firms
 Frequently Asked Questions on the Scheme for relaxation of time for filing forms related to creation or modification of charges under the Companies Act, 2013 issued by MCA on 17th June, 2020
 Important Notification for Revised Date of ISA Eligibility Test

No clarity on legal action against auditors
January, 10th 2009

Angry shareholders of Satyam may be miffed with the statutory auditors who have come in for sharp criticism following the dramatic revelations of accounting fraud in what is being billed as the country's Enron. But there is not much clarity on the kind of action shareholders can take against the auditors Pricewaterhouse Coopers under the laws.

"The contract that the auditor has with the company is not a contract the shareholders or other stakeholders are privy to. Hence, under Indian law it would be difficult for the shareholders to take any action against the auditors under the law of contract," according to Namrata Mehta, corporate lawyer, Economic Laws Practice, a law firm.

"It is a ticklish issue. Since the statutory auditors are appointed by shareholders they are entitled to take legal action. But investors have to prove that they suffered huge losses," said V Murali, central council member, Institute of Chartered Accountants of India (ICAI).

The shareholders must establish that they relied upon the auditors and that they suffered actual losses. If these conditions are satisfied the claim could well lie against auditors.

Though the books of accounts are prepared by the company and looked in detail by internal auditors appointed by the management, statutory auditors cannot absolve themselves of their responsibilities, Murali noted.

"Action in law has generally been taken either in contract or in tort," Namrata stated. Tort is a wrongful act done willfully in circumstances involving strict liability for which a civil suit can be brought. To establish a claim in tort, the shareholders have to satisfy the court that auditors owe a duty of care to shareholders and that there was a breach of such duty.

Even if the company takes action against the auditors under contract it would be limited by the terms of the contract. Many accountancy firms limit their liability usually to an extent of the fees they receive from the company, Namrata said. "How the court will view the liability of the auditors of Satyam will depend upon the extent to which the court is convinced about a claim for negligence."

Meanwhile, the ICAI has taken up the issue 'suo motu' and has referred it to its financial reporting review board. "We would look at the sampling techniques adopted by the auditors and as to why the normal checks by auditors did not bring out the facts," Murali said.

Home | About Us | Terms and Conditions | Contact Us | PPE Kit SITRA Approved | PPE Safety Kit
Copyright 2020 CAinINDIA All Right Reserved.
Designed and Developed by Ritz Consulting