ICAI Reprimands CA for Audit Lapses in ‘Customer Advances’ Case; Held Guilty for Professional Misconduct

The Institute of Chartered Accountants of India (ICAI) Disciplinary Committee (Bench IV) has reprimanded a Chartered Accountant (CA) based in Delhi, named Shubhra Purwar, in connection with her audit of M/s Shri Unimax Corporation Limited for the financial year 2014-15.

The action has been taken following information received from the apex bank of India, i.e., the Reserve Bank of India (RBI), which had conducted a scrutiny of the aforesaid company’s financial affairs. During the investigation, RBI noted that the company had received Rs. 94.98 lakh from 1,512 individuals during FY 2014-15, which was disclosed in the balance sheet under the head of “Advances from Customers”. However, the amounts were suspected to be in the nature of public deposits.

There were several discrepancies observed by the ICAI Disciplinary Committee (Bench IV) in the audit conducted by CA Purwar. The Respondent CA had submitted a list of 1,512 customers along with ledger extracts; however, she failed to satisfactorily reconcile the advances received with the corresponding accounting records. A sharp increase in customer advances was noticed from Rs. 10.48 lakh in the Financial Year 2013-14 to 94.98 lakh in FY 2014-15, and they were directly reduced to zero (NIL) in FY 2015-16.

The respondent also did not furnish any relevant evidence explaining these fluctuations. During the proceedings, the respondent had produced sales invoices that lacked key information, such as product description, quantity, rate, TIN/VAT number, and complete company address. The Report of the Director mentioned the nature of the company as a consultancy, while the respondent claimed that the company was involved in merchandise trading.

The VAT return furnished for the Assessment Year 2014-15 reflected total sales of Rs. 2.23 crore, while the financial statements disclosed total turnover amounting to Rs. 3.18 crore. The difference between these two amounts was said to be because of sales of exempt goods. However, the respondent failed to submit relevant documentary evidence to support this claim.

When the ICAI Disciplinary Committee (Bench IV) analysed all the aforesaid findings, it held Respondent CA Shubhra Purwarguilty of professional misconduct under Clauses (6), (7), and (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. The committee held that the audit was conducted without proper verification of doubtful transactions. The Disciplinary Committee had reprimanded the respondent CA under Section 21B(3)(a) of the Chartered Accountants Act, 1949.