ICAI Imposes Rs. 2 Lakh Fine on Chartered Accountant for Professional Misconduct in Concurrent Audit

The Institute of Chartered Accountants of India’s Disciplinary Committee (Bench-IV for 2025-26) considered the case under Section 218(3) of the Chartered Accountants Act, 1949, read with Rule 19(1) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007. The order followed the Findings whereby the member was found guilty of professional misconduct under Items (5), (6), (7), and (8) of Part I of the Second Schedule.

On 16 July 2025, a hearing was held, at which the respondent appeared via video conferencing and admitted receiving his written representation on 12 March 2025. The respondent submitted that the concurrent audit report was intended to identify irregularities in overdue bills or discounting outside delegated powers, and that none were found. He stated that all LC discounting was within the manager’s authority and that the system-generated report displayed “No Record Found” where no outstanding items existed.

Main Issue: Whether failing to exercise due diligence and professional care in reporting material discrepancies in discounting of Letters of Credit, amounted to professional misconduct under Items (5), (6), (7) and (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Committee Held: The Committee recorded that fraudulent LCs were later discovered by the informant bank and the branch manager was found involved, but held that this did not absolve the auditor of his duty to exercise due care. Based on the internal investigation report of the informant bank, the Committee noted fraudulent and fake LCs outstanding to the extent of Rs. 29.22 crore at the Rajindra Place branch unit. Bills were purportedly drawn on Syndicate Bank for Rs. 21.48 crore, Punjab National Bank for Rs. 2.85 crore and Bank of Baroda for Rs. 4.89 crore. The Committee observed that the respondent’s concurrent audit reports for May 2014 to November 2014 contained no adverse remarks on discounting of LCs and recorded “No Record Found” under the heads of invoked guarantees, defaults in payment of invoked guarantees, devolved LCs, and expired LCs. It held that a concurrent auditor must verify internal records, and if records are not produced, exercise greater diligence and alert higher authorities instead of issuing clean reports. Failure to do so constituted dereliction of professional duty.

The Committee held that the respondent failed to perform his duties with due diligence and did not report material irregularities related to LC discounting in his concurrent audit reports. The Committee found that his failure to verify records and to escalate non-availability of data was contrary to accepted audit procedures. Therefore, the member was held GUILTY of professional misconduct under Items (5), (6), (7) & (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. The Committee reprimanded CA Sunil Kumar and imposed a fine of Rs. 2,00,000 to be paid within 60 days from receipt of the Order.

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