ICAI Professional Misconduct: CA found Guilty of Professional Misconduct for not showing the sale of Plots

The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) has found Chartered Accountant Tinish Rajendra Mody Guilty of failing to show the sale amount of 12 plots in the audit report of FY ended 31.03.2014.

Committee noted that the Respondent was the auditor of the M/s. Shree Saisang Associates Private Limited (hereinafter referred to as the “Company”), The Committee noted that the Respondent was held prima-facie Guilty by the Director (Discipline) of Professional Misconduct falling Items (5), (6), (7), (8) and (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 on the following charges:

a. That the Respondent failed to disclose in audit reports for the financial year ended 31.03.2014 that the sale of 12 plots for Rs.96,51,800/- were omitted to be recorded in the books of accounts though the Respondent as auditor had knowledge of the same.

b. That the Respondent audited the accounts for the financial year 2012-13, 2013-14, 2014-15 and 2015-16 before laying accounts for the financial year 2011-12 at the AGM.

Findings:

Committee noted that the Company was carrying on the business of construction of commercial and residential projects. The Complainant was Chairman of the Company and was normally executing conveyance deed on behalf of the Company. The Committee further noted that certain disputes arose between the Complainant and other directors of the Company. The Company later on vide Board resolution passed on 02.05.2013 (page C-75 to C.;78 of prima-facie opinion), withdrew the authority granted to the Complainant till then for the execution of the conveyance deeds in respect of the project Sai Unity row-houses at Bhestan. The Committee further noted that Complainant had mentioned that he being unaware of the passing of the said resolution, he went on executing the conveyance deeds and on acquiring knowledge of the same, he refrained from executing such conveyance deeds.

As regards the first charge the Committee noted that Counsel for the Respondent had submitted that no sale deeds of the alleged 12 plots were produced before him and hence the same was not incorporated in the books of accounts for the financial year 2013-14. He further submitted that since no sale was recorded and hence the question of showing the amount receivable from the Complainant and thereby reducing the inventory does not arise.

Committee also noted that the Company had filed 12 Civil suits in respect of these plots and in civil suits the Company had requested to cancel the sale deed and never demanded money.

The submission of the Respondent that FIR filed before the Police Authority by the directors of the Company against the Complainant Shri Shailesh p. Gonawala is not a fact finding report and cannot be relied upon. The Committee also noted that the Respondent in his main audit report had also highlighted contents of the said FIR with a specific note on the top “Court Matter (Decision Pending)”to form a true & correct view.

Date of registration of conveyance deed of these alleged 12 plots is 26th June 2013 and thereafter. The Committee further noted that no cogent evidence/ submissions were brought on record by the Complainant to establish that sale of 12 plots were recorded in books of accounts.

Committee accordingly was convinced with the submissions of the Respondent that there was no change in accounting policy therefore quantification impact was not required. The Committee was convinced with the submissions of the Respondent that as there was no change in accounting policy of the Company and hence there was no need for disclosure requirements mentioned in SA-705. The Committee accordingly decided to hold the Respondent not guilty on this charge.

With regard to second charge the Committee noted that Counsel for the Respondent had submitted that the Financial statements of F.Y. were audited by previous auditor (M/s. S,B. Vaidya & Co.) on 31 _08.2012 and the same were also signed by the Complainant. He further submitted that he relied upon closing balance of F.Y. 2011-12 signed by previous auditor for opening balances of F.Y. 2012-13. He also submitted that he also verified data from balance sheet uploaded with Income Tax department.

The committee from the details of approval of accounts in AGM noted that the Financial statements of F.Y. 2011-12 were not approved by the shareholders and despite this, the Respondent conducted, audit of subsequent years i.e. 2012-13, 2013-14, 2014-15 and 2015-16. The Committee viewed that AGM may either adopt the financial statements or may reject the same and hence unless and until the previous year financial statements are placed before the AGM, the auditor cannot certify the accounts for the subsequent financial years.

Committee further noted that the Respondent has failed to mention in his Audit Report for the financial year 2012-13 that annual accounts for the financial year 2011-12 have not been accepted and approved in AGM. However, the Respondent failed to submit how he satisfied himself that an adverse report was not required to be issued in those circumstances where last year’s audit report was not approved in AGM and complete books and records were not available with the Company. Accordingly, the Committee in considered view decided to hold the Respondent GUILTY on this charge.

Conclusion:

In view of the above findings stated in above paras vis a vis material on record, the Committee in its considered opinion holds the Respondent is GUILTY of professional misconduct falling within the meaning of Item (6),(7) & (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 in respect of the second charge only mentioned in para 1 (b) above.

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