ICAI Disciplinary Committee Reprimands CA for Compromised Independence in Group Companies

A complaint was filed by the Serious Fraud Investigation Office (SFIO), Ministry of Corporate Affairs, pursuant to its investigation into Vaishnavi Corporate Communications Pvt. Ltd. and group entities. The Respondent, CA Sanjiv Saddy, acted as statutory auditor of Magic Airlines Pvt. Ltd., Leisure Club India Pvt. Ltd., and Maansi Agro Pvt. Ltd. for FYs 2005-06 and 2006-07.

SFIO alleged that financial statements were approved, adopted and audited on the same day repeatedly, indicating non-compliance with Sections 215(3) and 217(3) of the Companies Act, 1956.

Main Issue: Whether the same-day audit and approval of financial statements, along with holding directorships in group companies, amounted to a lack of due diligence and violation of auditor independence under the Chartered Accountants Act, 1949.

Committee’s Order: The Disciplinary Committee of the The Institute of Chartered Accountants of India held that repeated completion of the entire statutory process in a single day, coupled with the absence of adequate audit working papers, reflected failure to exercise due diligence. The explanation of minimal business activity did not justify such practice.

The Committee found that holding directorship in group companies while auditing related entities created structural threats to independence, including self-interest and familiarity threats. Independence must not only exist but also appear to exist. The Respondent was held guilty of Professional and Other Misconduct under Clause (1) of Part II of the Second Schedule and Clause (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949. The Committee exercised powers under Section 21B(3)(a) and ordered that CA Sanjiv Saddy be Reprimanded.

To Read Full Judgment, Download PDF Given Below