NOC from Previous Auditor: Understanding ICAI Guidelines and Legal Framework

Overview : A No-Objection Certificate (NOC) from the previous auditor is a critical aspect of professional ethics under the Chartered Accountants Act 1949. While commonly referred to as "NOC," the actual legal requirement is to communicate with the previous auditor before accepting an audit assignment. This requirement ensures ethical practices, protects professional interests, and maintains transparency in auditor changes.

Legal Foundation and ICAI Guidelines

Clause 8 of Part I of the First Schedule to the Chartered Accountants Act, 1949, mandates communication with a previous auditor. A chartered accountant is considered professionally misconduct if they accept an auditing position previously held by another chartered accountant or a certified auditor (under the Restricted Certificate Rules, 1932) without prior written communication with them.

It is crucial to understand that the law mandates communication, not necessarily obtaining a formal NOC. The term "NOC" is trade parlance commonly used in practice, but the statutory requirement is limited to written communication with the previous auditor.

Who Can Initiate Communication for NOC?

• New Auditor's Responsibility: The primary responsibility lies with the newly appointed auditor to communicate with the previous auditor before accepting the appointment as the statutory auditor of the company. This is a professional ethics requirement under the Chartered Accountants Act 1949. The communication must occur before the new auditor formally accepts the appointment and commences audit work.
• Company's Role: While companies can facilitate communication, they cannot substitute the mandatory written communication requirement between auditors. Company directors can assist by providing contact details of the previous auditor and encouraging cooperation.

Recourse When NOC is Not Provided

Often, previous auditors refuse NOCs or are unresponsive due to fee disputes, disagreements, or negligence. This challenges new auditors and companies to change auditors. However, legal guidance and practical options exist to navigate these situations ethically and compliantly.

• Written Communication Suffices: The legal requirement is satisfied if the new auditor can prove that written communication was sent to the previous auditor, regardless of whether a response is received.
• Reasonable Time Period: If no response is received within a reasonable time (typically 15 days), the incoming auditor may presume no objection and proceed with the appointment.
• Professional vs. Personal Objections: Previous auditors cannot withhold NOC for non-professional reasons such as outstanding fees. Valid professional objections must relate to audit quality, regulatory compliance, or public interest concerns.
• Documentation Requirements: The incoming auditor must maintain evidence that communication reached the previous auditor, such as registered post acknowledgements or email delivery receipts.

Conclusion

NOC from a previous auditor is vital for professional ethics in chartered accountancy. While not legally required for issuance, communication is mandatory to avoid disciplinary action. The upcoming ICAI Centralised NOC Policy will digitise this. Companies and auditors must understand their roles and responsibilities, maintaining documentation. This protects professional interests, ensures audit quality and transparency, and respects a company's right to change auditors.

Author Bio

Sanjeev Kumar | in

Meet Sanjeev Kumar, a distinguished advocate before the Supreme Court of India, High Courts, and National Tribunals. Founding Partner of Juriskps Law Offices, a premier law firm, he specializes in commercial, corporate, tax, arbitration, and IPR matters. His incisive legal insights enrich Setindiabiz’s blog with expert commentary.