ICAI Suspends CA for Three Months Over Improper Adjustment of Director’s Loan

A complaint was filed by Shri Hukum Singh, minority shareholder and former director of M/s Adaab Hotels Ltd., against CA Sanjay Gupta, statutory auditor for FY 2017-18 and 2018-19. In the balance sheet as on 31.03.2018, an unsecured loan of Rs. 50,05,438.16 was shown as payable to the complainant. In the later year, the liability was shown as NIL, while Rs. 19,39,431.03 was reflected as recoverable from him under long-term loans and advances to related parties. The complainant alleged that no repayment was made and that the adjustment lacked confirmations or supporting evidence.

The Respondent contended that adjustments were based on board resolutions, management representations, and alleged misappropriation by the Complainant, and that audit procedures were duly followed.

Main Issue: Whether the auditor failed to obtain sufficient appropriate audit evidence and exercise professional skepticism in certifying financial statements that reversed a loan payable into a recoverable balance from a related party, amounting to misconduct under the Chartered Accountants Act, 1949.

Committee’s Decision: The Disciplinary Committee of the Institute of Chartered Accountants of India held the Respondent guilty on the first charge. It found that he failed to produce audit working papers, balance confirmations, reconciliations or documented legal opinions justifying the conversion of Rs. 50,05,438.16 payable into Rs. 19,39,431.03 recoverable. Reliance solely on management representations, particularly amid shareholder disputes, was held insufficient. Non-compliance with SA 505 and failure to exercise professional skepticism under SA 240 were noted.

The Committee accepted reliance on a Board Resolution and related records and found no negligence. Accordingly, the Respondent was found guilty on the first charge and not guilty on the second. Due the gravity of professional misconduct, the Committee ordered reprimand, removal of his name from the Register of Members for three months, and a fine of Rs. 1,00,000 payable within 60 days.

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