ICAI Disciplinary Committee Reprimands Two CAs for Lapses in Concurrent Audit of Bank Branch

The Disciplinary Committee of the Institute of Chartered Accountants of India examined allegations against M/s. Rajendra Arora & Associates arising from its appointment as Concurrent Auditor of East Patel Nagar Branch of Allahabad Bank for the period October 2010 to September 2012. The matter stemmed from inspection and vigilance findings indicating serious irregularities and fraud involving substantial amounts in borrower accounts.

It was alleged that the firm failed to submit any special report on frauds or serious irregularities and that the concurrent audit reports did not mention the name and membership number of the signing partner, allegedly violating AAS 28. The Director (Discipline) formed a prima facie opinion holding CA. Rajender Arora and CA. Ravi Sethi guilty under the relevant provisions of the Chartered Accountants Act, 1949.

During proceedings, both Respondents denied gross negligence.  Both argued that sanction of loans and custody of title deeds were handled at the Zonal Office and fell outside the scope of branch-level concurrent audit.

Issue Raised: Whether the Respondents failed to exercise due diligence and were grossly negligent in not reporting serious irregularities and fraud in borrower accounts during concurrent audit.

Committee decided: The Committee held that concurrent audit is preventive in nature and intended to detect irregularities at an early stage. It observed that the Respondents failed to establish that verification of transactions sanctioned at the Zonal Office was outside their audit scope and did not produce conclusive evidence of having reported irregularities in the concerned borrower accounts. Similar immovable properties were used as collateral and certain title deeds were found fraudulent, still the Respondents could not substantiate that these issues were specifically highlighted in their reports. The omission of the signing partner’s name and membership number was also treated as non-compliance with professional standards.

Thus, the Committee concluded that the Respondents were guilty of Professional and Other Misconduct under Clause (2) of Part IV of the First Schedule, Clause (7) of Part I and Clause (1) of Part II of the Second Schedule to the Act. Both CA. Rajender Arora and CA. Ravi Sethi were reprimanded and fined Rs. 1,00,000 each, payable within 60 days.

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