ICAI Reprimands CA for Failing to Verify Suspicious Invoices Rs.1 Lakh Penalty Imposed

Shri Deepak Sethi, former promoter and director of Laycock Engineers Pvt. Ltd., filed a complaint against CA Sanjeev Kumar Gandhi, the company’s statutory auditor, before the Institute of Chartered Accountants of India. The complainant alleged that the auditor failed to report several irregularities in the company’s accounts, including personal expenses booked as business promotion expenses and large payments made to certain entities and individuals. According to the complainant, these transactions were part of siphoning company funds and should have been detected during the audit.

The respondent denied the allegations and stated that the expenses were recorded as business promotion expenses based on supporting records. He also relied on an income-tax appellate order which did not treat the claims as fraudulent. Regarding payments to certain parties, he argued that they related to genuine business transactions such as investments or property dealings that were later reversed. However, the complainant pointed out that invoices issued by M/s Pooja International carried a TIN that had already been cancelled before the transactions took place.

Issue Raised: Whether the statutory auditor failed to exercise due diligence by relying on invoices and transactions without properly verifying their authenticity.

Tribunal Ruling: The Disciplinary Committee of the Institute of Chartered Accountants of India examined the allegations separately. It found that the auditor could not be held responsible for the expenses booked as business promotion expenses since supporting documents were produced and the income-tax appellate authority had not treated them as fraudulent.

However, the Committee found serious lapses in relation to payments made to M/s Pooja International. The invoices supporting payments of around Rs. 82 lakh carried a TIN number that had already been cancelled by the VAT authorities. Despite this clear discrepancy and other documentation issues, the auditor failed to verify the authenticity of the invoices or demonstrate that adequate audit procedures had been carried out.

Holding that a statutory auditor must ensure that financial statements present a true and fair view, the Committee concluded that the respondent failed to exercise proper professional care. He was therefore held guilty of professional misconduct under the Chartered Accountants Act, 1949, reprimanded, and directed to pay a penalty of Rs. 1,00,000 within 60 days.

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