Chartered Accountant Penalized Rs. 50,000 For Failure To Exercise Audit Due Diligence:

Chartered Accountant Penalized Rs. 50,000 For Failure To Exercise Audit Due Diligence

The complaint was filed by the Registrar of Companies, Karnataka, against CA Ajay Kumar Sharma regarding the audit of M/s Skylinks Technology Pvt. Ltd. for FY 2020–21. The company was suspected to be part of a network operating loan applications that provided short-term loans at high interest rates and used coercive recovery practices. During scrutiny of filings, the ROC noticed discrepancies in the financial statements. A loan of Rs. 2.99 crore from M/s Glitter Sky Technology Pvt. Ltd. was shown as short-term borrowing in the audited balance sheet but disclosed as long-term borrowing in Form AOC-4 filed with the ROC.

The auditor also failed to produce the loan agreement during the proceedings. Another inconsistency related to director remuneration of Rs. 6 lakh paid to three individuals who were not listed as directors on the Ministry of Corporate Affairs portal. The auditor could not provide board resolutions or other records confirming their appointment. The Director (Discipline) of the Institute of Chartered Accountants of India formed a prima facie view that the auditor had failed to exercise due diligence and referred the matter to the Disciplinary Committee.

Main Issue: Whether the statutory auditor was guilty of professional misconduct for failing to properly verify loan classification and director remuneration disclosures in the audited financial statements.

Tribunal's Decision: The Disciplinary Committee of the Institute of Chartered Accountants of India held the auditor guilty of professional misconduct under Clause (7) of Part-I of the Second Schedule to the Chartered Accountants Act, 1949. It observed that the auditor failed to maintain audit documentation for the Rs. 2.99 crore borrowing, contrary to SA-230 requirements, and relied solely on management explanations.

The Committee also noted that remuneration was disclosed for persons who were not directors according to MCA records, indicating failure to perform basic verification procedures. Although the auditor cited reliance on company records and COVID-19 disruptions, the Committee held that absence of malafide intent does not excuse lack of due diligence. Thus, the Committee reprimanded the respondent and imposed a fine of Rs. 50,000, payable within sixty days.

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