The Institute of Chartered Accountants of India (ICAI) determined that the Chartered Accountant (CA) is not guilty of any professional misconduct as defined in Items (7) of Part 1 of the Second Schedule to the Chartered Accountants Act, 1949. The Disciplinary Committee expressed the view that the matter relates solely to a misclassification of Trade Receivables, which does not constitute a case of significant negligence.
In the instant case, the respondent CA Ramakrushna Patra, as an auditor, conducted the audit of the financial records of two interconnected companies, namely M/s Team Media & Hospitality Pvt Ltd. and M/s Neelachal Builders(P) Ltd., for the fiscal year 2014-15.
In the audit financial statement of M/s Neelanchal Builders (P) Ltd, a related party loan given to M/s Team Media & Hospitality Pvt Ltd. was shown at Rs. under related party disclosure whereas the same transaction was showed at Rs. 88,76,500/- in the audit financial statement of M/s Team Media & Hospitality Pvt Ltd. under related party disclosure. It is alleged that the Respondent, being the auditor of both the related Companies, did not exercise due diligence.
Regarding the mismatch, the respondent CA submitted that both the Companies have matched closing balances of Rs. as on 31.03.2015 in their audited books of accounts as balance receivable and balance payable respectively, however, in note no. V of part B of audited financial statements for the year ending 31.03.2015 of M/s Neelanchal Builders Pvt Ltd, the amount was inadvertently shown as Rs. 7,50,000 instead of Rs. 88,76,500which was merely a typographical error as previous year’s figure concerning M/s Team Media & Hospitality Pvt Ltd. of Rs. was inadvertently copied pasted in the financial year 2014-15 figures.
Also stated that he honestly believes there is a very slight chance to call such a minor error in grouping and arranging of figures in the Balance Sheet as Professional Misconduct.
Additionally submitted that ‘as per Code of Ethics “Professional Misconduct on the part of a person practicing one of the technical professions cannot fairly or reasonably be found merely on a finding of a bare non-performance of a duty or some default in performing it. The charge is not one of inefficiency but of misconduct. Imputation of certain mental condition is always involved. The test must always be whether in addition to the failure to do the duty, there has also been a failure to act honestly and reasonably”.’
During the course of hearing, the Committee considered the written as well as verbal submissions of the Respondent’s counsel and after due deliberation decided to hold the Respondent Not Guilty of Professional Misconduct falling within the meaning of Items (7) of Part 1 of Second Schedule to the Chartered Accountants Act, 1949. Hence, the committee ordered the case closed.
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