CA Debarred for One year for failure of detection of Fraud

The ICAI Disciplinary Committee has debarred Chartered Accountant for One year for failure of detection of Fraud.

The Disciplinary Committee was, inter-alia, of the opinion that CA. Mukesh P. Shah (033862), (hereinafter referred to as the Respondent”) was GUILTY of professional misconduct falling within the meaning of Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

The Committee noted that the Respondent was the statutory auditor of the Indian Bullion Market Association Limited (hereinafter referred to as the “IBMA/Company”), and he had audited and submitted his report for the Financial Year ending on 31st March 2011, 3pt March 2012, and 31st March 2013. the charges against the Respondent with respect to the audit of F.Y. 2012-13 were as follows:

The Respondent failed to properly access the adequacy of internal control procedures that were commensurate with the size of the Company and the nature of its business.

 The Respondent failed to detect fraud in respect of default in payment to investors.

The Committee noted that the Respondent was present through Video Conferencing Mode through BKC office of ICAI, Mumbai. The Committee noted that the Respondent relied upon his written submission dated 9th March 2023 and supplementary written submissions dated 24th March,2023. The Committee noted that the Respondent in his written and oral submissions before it, had, inter-alia, mentioned as under:

That the assumption of fraud by or on the company is incorrect in so far as no fraud has taken place. Fraud had taken place at the holding company level of NSEL and not at the auditee company level. Hence, the question of reporting adversely on the issue of fraud did not arise. Further, detection of fraud is not the responsibility of the statutory auditor. So, fraud at NSCL cannot be equated with fraud at IBMA.

Large number of subsequent developments, subsequent events and findings etc. had taken place at the holding company level i.e. National Spot Exchange Limited. Now that has necessitated the withdrawal of the audited financial statements of NSEL which is the holding company. Accordingly, the management of IBMA also felt it necessary to amend the financial statement of the company, and hence the auditor had no choice but to accept the request of the auditee company and extend the audit procedures as prescribed into SA 560.

The Respondent pleaded for sympathy and a lenient view into the matter and urged the Committee not to levy any penalty more than a reprimand or token penalty in the matter as he has already suffered huge loss of professional assignments of all regulated entities, and that itself is a sufficient penalty in the last 10 years.

The Committee, while considering his oral and written submissions on record, noted that the Respondent failed in the detection of fraud, and he himself asked the management not to rely on his financial statements. The Committee was of the view that this act on the part of the Respondent proves that he was also doubtful about the quality of the audit conducted by him. The Committee noted that it has already been established that the Respondent was negligent while performing his professional assignments and failed to exercise his professional scepticism.

Accordingly, the Committee, looking into the gravity of the charge vis-a-vis submissions of the Respondent, decided to give a reasonable punishment to the Respondent in the instant matter.

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 name of the Respondent i.e., CA. Mukesh P. Shah (033862), be removed from the Register of members for a period of (01) One Year. This punishment shall run concurrently with the punishment given to him period in of cases [PR-214/13-DD/207/2013, PR-212/13-DD/222/13 (clubbed) and PR-215/13-DD/216/13 (clubbed), DD/253/13 (clubbed)/DC/431/15] and [PPR/P/44/2014/DD/76/INF/14-DC/769/2018].

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