CA debarred for 3 months for not obtaining external Debt confirmation while doing Audit

The Disciplinary Committee of ICAI in the matter of CA Binaya Kumar Jain has debarred Chartered Accountant for 3 months for not obtaining external Debt confirmation while doing Audit.

That vide findings under Rule 18 (17) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 dated 11.02.2023, the Disciplinary Committee was, inter-alia, of the opinion that CA. Abhay Balkrishna Upadhye (M. No. 049354) (hereinafter referred to as the Respondent”) was GUILTY of professional misconduct falling within the meaning of Items (5), (7) and (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

The Committee noted that the instant matter relates to the statutory audit for the financial year 2017-18 of M/s Sunil Hitech Engineers Ltd. (hereinafter referred to as the “Company”) undertaken by the Respondent.

The Respondent is held guilty on the following grounds:

1. Respondent did not perform the proper audit procedure in disclosing the step-down subsidiary company in the consolidated financials of the company and merely relied upon the management’s representation.

2. Company had not given a complete, sufficient, and proper disclosure of Bank Guarantee (BG) and letter of credit (LOC) under the head contingent liability in its financial statements for the period ended 31st March,2018 and the Respondent has failed to raise any objection/report such a non-disclosure and violation of accounting standards by the management of the Company.

3. Respondent while performing the audit for the financial year 2017-18 did not obtain external confirmation of book debts as additional evidence along with management representation.

As regards to the charge of non-disclosure of a step-down subsidiary in the consolidated financials, the Respondent mentioned that in his written statement to PFO vide letter dated 20th December 2021 he specifically stated that letter was not made available to him, and the said point was not in the agenda of the board meeting. This clearly means that he checked the board meeting agenda. He further submitted that since the step-down subsidiary is not disclosed to him, it is not possible to assess its equity share capital, turnover, and number of employees from a materiality point of view.

With regards to the charge about insufficient and improper disclosure of bank guarantees under the heading contingent liability, he mentioned that the liability of Rs 66.51 crores of subsidiary was a consolidation of actual liabilities outstanding at year-end of loans/LC/BG.

With regard to the charge about non obtaining external conformation about debtors, he had submitted his written statement to Prima-facie opinion vide letter dated 20th December 2021 wherein he had annexed copies of letters seeking conformation of liability.

The Committee, after consideration of the same and after listening to the Respondent at length, decided to reserve its decision. Thereafter, this matter was considered by the Committee in its meeting held on 6th April 2023 wherein the same members, who heard the case earlier, were present for consideration of the facts and arriving at a decision by the Committee. Accordingly, the Committee, keeping in view the facts and circumstances of the case, the material on record and the submissions of the parties, the findings of the Disciplinary Committee, and the various submissions of the Complainant and the Respondent on the findings of the Disciplinary Committee, gave its decision.

Committee noted that charges against the Respondent observed that the Respondent has clearly failed to apply his audit procedures diligently, failed to report the violation of an accounting standard made by the management of the Company, and also failed to report the existence of such a subsidiary SMC, which was not disclosed in the financials of the auditee company. The Committee further observed that the disclosure in respect of contingent liability given in the financials of the company was not sufficient and proper, and the respondent, as the company’s auditor, failed to report the same in his audit report. The Committee also noted that the Company, whose financial position as on 31st March 2018 was sound enough, suddenly went into liquidation in September 2018 raises questions about the diligence exercised by its auditor.

Therefore, keeping in view the facts and circumstances of the case, material on record, and submissions of the Respondent before it, the Committee ordered that the Respondent, CA. Abhay Balkrishna Upadhye (M.No.049354) of M/s. K K Mankeshwar & Co., Chartered Accountants, Nagpur be removed from the Register of members for a period of Three months along with a fine of Rs.1,00,000/- (One lakh Rupees Only).

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