ICAI Disciplinary Committee Reprimands CA for Signing Financial Statements Without Directors’ Approval

In this case, disciplinary proceedings were initiated after it was found that the respondent, who was the statutory auditor of M/s Chang Chun Chemical India Private Limited for the period 2018-19, had signed and attested the balance sheet and profit and loss account of the company without ascertaining whether they were authorised and signed by the company directors. The Committee observed that the financial statements uploaded on the MCA portal bore the respondent’s signature but not the management endorsement or verification of the company. This was deemed to be a serious default and a violation of Section 134 of the Companies Act, 2013, which mandates financial statements to be first authenticated by the Board and signed by the authorised directors in their own capacity before they are presented to the auditor for certification.

During proceedings, the respondent contended that the omission was not deliberate and that he had provided the signed financial statements to company representatives for director approval. He further claimed that he was unaware that the version ultimately uploaded on the MCA portal bore only his signature and that such a discrepancy may have occurred without his knowledge.

Issue Raised: Whether or not the respondent, in signing and certifying financial statements not signed and approved by the directors of the company, has failed to exercise due diligence according to Section 134 of the Companies Act, 2013, thereby constituting professional misconduct according to Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Committee’s Ruling: The Disciplinary Committee held that the respondent had defaulted in complying with the mandatory verification required of a statutory auditor under Section 134 of the Companies Act, 2013. It was the professional responsibility of the auditor that financial statements placed before him for audit had been properly approved by the Board and signed by authorised directors. The Committee pointed out that the financial statements posted on the MCA portal bore the signature of the respondent alone, but no authentication or endorsement by the company management.

The Committee also noted that there was no supporting evidence for the respondent’s explanation, and his inability to file any formal complaint of misuse of his signature vitiated his defence. The Committee also contrasted the version of financial statements the respondent had generated during the course of proceedings with the ones on record and observed vast differences in terms of format and looks, indicating that the alternate version was made later. The Committee held that the respondent failed to exercise due diligence and was grossly negligent in carrying out his functions as a statutory auditor. His actions were held to violate Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. The Committee emphasized that auditors are expected to maintain the highest standards of care, particularly when authenticating financial statements, as their certification influences stakeholders, regulatory authorities, and the public at large.

Therefore, the committee directed that CA. Abhilesh Jha (M. No. 539583) be REPRIMANDED and a fine of Rs.25,000 (Rupees Twenty-Five Thousand only) be imposed, payable within sixty days of the receipt of the order. The Committee once again emphasized that the foundation of audit integrity lies in compliance with due diligence and professional skepticism, and any lapse from these tenets attracts disciplinary action.

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