ICAI Disciplinary Committee Removes CA’s Name for Two Years; Imposes Rs. 1.50 Lakh Fine

The complaint was initiated by an investor in First Leasing Company of India Ltd. after an RBI inspection held between 26/08/2013 and 10/09/2013 directed the company to recast its accounts. The recast accounts disclosed discrepancies of around Rs. 1,676 crore, and the RBI observed falsification of books and incorrect regulatory returns. For example, “Stock on Hire” was shown in published accounts at Rs. 1,588.35 crore but was recast to only  Rs. 30.52 crore. The RBI issued a prohibitory order on 13 September 2013.

Thereafter, forensic and special audits identified a number of irregularities such as fictitious entries, abuse of cheque leaves, altered receipts/payments, faulty lease accounting, and non-disclosure of related-party transactions. The statutory auditor company withdrew some certificates and resigned. An investor and banks lodged complaints thereupon, after which the Director (Discipline) formed a prima facie opinion and referred the case to the Disciplinary Committee.

Main Issue: Whether the statutory auditor’s conduct, such as failure to apply due diligence, secure adequate and appropriate audit evidence, and draw attention to material deviations from accepted audit procedure, constituted professional misconduct.

Disciplinary Committee Decided: After reviewing the RBI recast, forensic/special audit reports, working papers, and submissions, the Committee held that the auditor failed to exercise due diligence and professional scepticism. Bank confirmations, reconciliations, lease accounting checks, related-party disclosures, and corroborative evidence were either not obtained or insufficiently verified. Reliance only on management representations was held to be unacceptable.

Invoking Section 21B(3) read with Rule 19, the Disciplinary Committee ordered that the name of CA V. Balasubramanyan(M. No. 018444) be removed from the Register of Members for two years and imposed a fine of Rs .1,50,000 payable within 90 days. The committee directed that failure to pay would extend the removal period by an additional three months. The punishment is to run concurrently with other specified ICAI cases.

To Read Full Order, Download PDF Given Below