ICAI Reprimands Chartered Accountant for Audit Reporting Lapses

The Institute of Chartered Accountants of India (ICAI) has reprimanded a chartered accountant for professional misconduct.

The complaint was filed by Shri Atul Batra, a shareholder of M/s BHP Engineers Pvt. Ltd, where the respondent, CA Ravi Khanna, was an auditor for the FY 2014-15 and 2015-16.

The allegations included improper reporting of a loan, failure to report violations under Section 186 of the Companies Act, non-disclosure of demand raised by the sales tax department, and non-compliance with CARO 2016 requirements.

Improper Reporting of Loan

It was alleged that the company gave Rs 4 crore in idle funds to BHP Infrastructure Pvt. Ltd as a loan from 01.04.2013 to 31.03.2017. It was noted that BHP Infrastructure Pvt. Ltd. had approached BIFR on 31.03.2015, which meant that BHP Infrastructure was not able to pay its dues/creditors. However, the respondent incorrectly reported this loan as regular in his audit reports.

The board noted that the loan was approved on 31st March 2013, before M/s BHP Infrastructure Pvt. Ltd. approached BIFR, and no contemporaneous evidence showed the borrower was sick, insolvent, or financially non-viable at the time of approval. Therefore, the board said that the allegations are unsubstantiated, and the respondent was held not guilty of professional misconduct falling within the meaning of Clause (6) and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Non-Reporting of Violation of Section 186 of the Companies Act

In the second allegation about the non-reporting of violation of Section 186 of the Companies Act, 2013, the committee observed that the loan was granted on 31.03.2013, and on this date, the Companies Act, 1956, was still in force, and Section 372A of that Act did not apply to private companies. In such a case, the auditor was not required to report the said loan in the audit report for F.Y. 2012-13. Based on this, the Respondent was held not guilty of professional misconduct falling within the meaning of clauses (5) and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Non-Reporting of Sales Tax Demand

About the allegations of non-reporting of sales tax demand of Rs. 87.16 lakhs in the audit report, the committee noted that this liability was since FY 1992-93 and was reported in the notes to accounts. The board ruled that just because a demand was pending for a long period, it is not mandatory to add a separate adverse comment in the auditor’s report, especially when the matter is under litigation. Therefore, the respondent was held not guilty of professional misconduct falling within the meaning of Clause (6) and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Failure to Reflect Disputed Dues

The next allegation was that the respondent had failed to reflect the disputed dues. It was noted that even though the financial statements signed by the respondent contained the disputed sales tax demand, MSME award, and interest challenged before the High Court, the auditor’s report stated “no disputed statutory dues.”

Therefore, the committee held CA Ravi Khanna guilty of professional misconduct under Clauses 6 and 7 of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Non-compliance with CARO 2016

As per the allegations, the Audit Report for 2015-16 was not in accordance with CARO 2016. The committee noted that CARO 2016 was mandatorily applicable for FY 2015-16. Therefore, the Respondent was held guilty of professional misconduct under Clause (6) and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Failure to Verify and Report on Title Deeds under CARO

It was alleged that the respondent did not verify or report on the title deeds of immovable properties as required under Paragraph 1(c) of CARO 2016 in the audit report for the financial year 2015-16. The committee noted that CARO requires explicit verification and reporting on title deeds, even if no discrepancies are found.

Therefore, the Respondent was held guilty of professional misconduct under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Due to the above allegations, the committee reprimanded the Respondent, CA Ravi Khanna, under Section 21B(3)(a) of the Chartered Accountants Act, 1949.