The Institute of Chartered Accountants of India (ICAI) reprimanded the Chartered Accountant (CA) along with a fine as he was found to be guilty of professional misconduct falling within the meaning of Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 in the absence of documentary evidence showing verification of records by the auditor.
M/S Arvind Remedies Ltd. (the “Company/ ARIL”) had taken working capital finance and term loan from the consortium of Bank which was led by the Complainant Bank. The Company defaulted in the payment of interest and principal commitments and the account has slipped into the NPA category with all the banks in the consortium.
The Consortium initiated the process of restricting loan account on request from the Company and accordingly stock audit, forensic audit, valuation of the Company’s assets, TEV study and final package preparation was initiated. The Complainant brought on record a soft copy of the Forensic Audit dated 23.05.2015. The Respondent was statutory auditor of the Company for the financial years 2011-12, 2012-13 and 2013-14.
It was alleged that the Company was maintaining multiple databases of which one matches with books of accounts and the other for purposes of excise, sales tax and internal control purposes. Further, the database maintained for sale tax was different from the database maintained for the excise department. It was alleged that the Company inflated purchases and sales by purchasing and selling the majority of stocks from/to controlled parties.
The Respondent failed to report under CARO in respect of fixed assets and inventory. The Company was unable to provide any authenticated/ reliable working papers to support the claim of physical verification. It is not known how the Respondent has given the clean audit report.
It was viewed that there was a huge material difference between the sales/purchases reported and sales/purchases as per returns filed with the Government authorities.
The Respondent took the plea that the Company was maintaining multiple books of accounts he was not given access to other books of accounts and he has never come across any second set of records/documents.
The Disciplinary Committee coram comprising CA. Aniket Sunil Talati, Presiding Officer, Shri Prabhash Shankar, CA (Dr). Rajkumar Satyanarayan Adukia, Member and CA. Gyan Chandra Misra observed that the plea of the Respondent was not acceptable as the difference would have been easily noticeable if he had taken steps to verify the figures of sales/purchases with the returns filed with the Government Authority.
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