In terms of the general principles of law, any person having the lawful possession of somebody else’s property, on which he has worked, may retain the property for non-payment of his dues on account of the work done on the property. On this premise, auditor can exercise lien on books and documents placed at his possession the client for non payment of fees, for work done on the books and documents. The Institute of Chartered Accountants in and Wales has expressed a similar view on the following conditions :
- Documents retained must belong to the client who owes the money.
- Documents must have come into possession of the auditor on the authority of the client. They must not have been received through irregular or illegal means. In case of a company client, they must be received on the authority of the Board of Directors.
- The auditor can retain the documents only if he has done work on the documents assigned to him.
- Such of the documents can be retained which are connected with the work on which fees have not been paid.
Under section 209 of the Act, books of account of a company must be kept at the registered office. These provisions ordinarily make it impracticable for the auditor to have possession of the books and documents. However, in both the Acts, further provisions are there under which books of account could be kept at a different place, pursuant to a Board resolution of which notice must be given to Registrar of Companies. If in a company Board passes such a resolution and hands over the books of account to the auditor and makes the necessary notification to the Registrar the auditor may in such circumstances, exercise the right of lien for non-payment of fees. However, as per section 209 he must provide reasonable facility for inspection of the books of account directors and others authorised to inspect under the Act. Taking an overall view of the matter, it seems that though legally, auditor may exercise right of lien in cases of companies, it is mostly impracticable for legal and practicable constraints. His working papers being his own property, the question of lien, on them does not arise. AAS 3 issued ICAI on Documentation also states that, “working papers are the property of the auditor. The auditor may at his discretion make portions of or extracts from his working papers available to his clients. The auditor should also adopt reasonable procedures for custody and confidentiality of his working papers and should retain them for a period of time sufficient to meet the needs of his practice and satisfy any pertinent legal or professional requirements of record retention”.