Lapses in Audit: ICAI Disciplinary Committee orders removal of CA from Roll for 1 Month and 1 Lakh Penalty

The Institute of Chartered Accountants of India ( ICAI ) has taken disciplinary action against a Chartered Accountant ( CA ) for failure to adequately address the identified discrepancies in the company records found during audit. The case originated from a complaint filed by A.K. Mahala, Deputy Commissioner of Income Tax (DCIT), against Chartered Accountants audits conducted for Samruddha Jeevan Foods India Limited for the financial years 2008-09 to 2013-14. The DCIT's office raised concerns about potential discrepancies in the company's financial records during this period. The committee scrutinized the Chartered Accountant's audit reports, company records, and relevant financial documents. The Committee also interviewed relevant parties, including representatives from Sammruddha Jeevan Foods and potentially other auditors who may have been involved during the period under investigation. The Disciplinary Committee's investigation identified lapses in Chartered Accountant's audit practices. The Committee determined that Chartered Accountant failed to report instances where the company allegedly accepted deposits disguised as sales and rearing activities for livestock. This raised concerns about the company's true financial position and potential non-compliance with relevant regulations. Furthermore, the investigation revealed discrepancies in the company's records, including a lack of proper stock registers for livestock. This made it difficult to verify the accuracy of the company's financial statements related to livestock inventory. The Committee also considered the findings of a special audit conducted by external auditors. This special audit identified irregularities in the company's financial records and pointed out the non-deduction of taxes on payments made to agents. These issues, the Committee noted, were not addressed in Chartered Accountant's original audit reports. The Chartered Accountant was given the opportunity to defend himself before the Disciplinary Committee during a hearing held on March 19, 2024. He participated in the hearing via video conferencing and argued that he hadn't been formally charged by any investigative agency. He also highlighted that crucial documents related to the audit were unavailable as they were in the custody of the Income Tax Department. It was also submitted by the accused that it is the responsibility of the Management of the Company to ensure that the entity’s operations are conducted in accordance with the provisions of laws and regulations, including the compliance with the provisions of laws and regulations that determine the reported amounts and disclosures in an entity’s financial statements. The auditor is not responsible for preventing the non-compliance and cannot be expected to detect the non-compliance with all the laws and regulations, he added. He denied any intentional misconduct and pleaded for leniency from the Committee. The Chartered Accountant cited past professional setbacks and health issues as mitigating factors. After careful consideration of all evidence, including the investigation findings, Chartered Accountant's defense, and the special audit report, the Disciplinary Committee concluded that a significant penalty was warranted. The Committee determined that Chartered Accountant's failure to adequately address the identified discrepancies in the company's records and his inability to convincingly refute the findings of the special audit constituted a serious lapse in professional conduct. To uphold the integrity of the accounting profession and ensure accountability among its members, the Committee imposed a two-pronged penalty on the Chartered Accountant. Firstly, he will be removed from the ICAI's Register of Members for a period of six months. This effectively restricts him from practicing as a chartered accountant during this period. Secondly, he will be required to pay a fine of ₹1 lakh. Members of the ICAI are entrusted with ensuring the accuracy and integrity of financial statements for the companies they audit. Lapses in following proper auditing procedures and failing to identify potential financial irregularities can have serious consequences. The ICAI, through this action, demonstrates its commitment to maintaining the highest levels of professional conduct and ethical practices within the accounting and auditing profession in India. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates