ICAI Removes Member for 2 Months and Imposes Rs. 50,000 Fine for Professional Misconduct

The case was lodged by the Serious Fraud Investigation Office regarding DSKDL and Vastu group companies. It had been observed that DSKDL advanced money to Vastu companies and then had it remitted to an individual without any material supplies underlying the transactions. The balances were carried forward year after year as advances, even though no goods were purchased. In spite of these obvious irregularities, the statutory auditor provided unqualified reports.
Upon examination, the Disciplinary Committee noted that the auditor failed to disclose the related party transactions and relationships as per AS-18. It was also noted that the respondent was cognizant of the diversion of the funds but went on to certify the advances as authentic. The Committee held that such conduct showed a lack of due diligence, absence of sufficient appropriate audit evidence, and concealment of material facts.

Central Issue: Whether failure to report material facts, concealment of related party transactions, and issuance of clean audit reports in spite of sham advances constituted professional and other misconduct under Items (5), (6), (7) and (8) of Part I of the Second Schedule and Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949.

Committee’s Decision: The Disciplinary Committee found the respondent guilty of professional and other misconduct as charged. It held that board approvals under the Companies Act do not absolve an auditor’s statutory duty under accounting standards. Since the respondent had failed in his responsibility, the Committee exercised its powers under Section 21B(3) of the Chartered Accountants Act.

Thus, it ordered the removal of the member’s name from the Register of Members for a period of two months and imposed a fine of Rs. 50,000, payable within sixty days from receipt of the order.

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