The Appellate Authority has recently confirmed an order of the disciplinary committee awarding punishment to a Chartered Accountant for committing negligence in carrying out audit while applying for bank loans for his client.
The Appellant was an Auditor of M/s Resurgere Mines & Minerals India Ltd, for the year ended on 31st March 2011, which obtained loans from various banks. The said company committed fraud and defaulted in repayment of interest and loan, which has been reported to RBI.
A complaint was lodged against the Appellant for not carrying out the audit properly and relied upon the false Statement of Account of Keonjihar Central Co-operative Bank (KCCB) given by the company.
The Disciplinary Committee observed that the Appellant did not use the professional skepticism and neither obtained the balance confirmation of closing balances as prescribed in the Auditing Standards, nor reported this matter in the Audit Report. Accordingly, the committee awarded punishment of Reprimand and also imposed fine of Rs.50,000/- on the appellant.
Before the Appellate Authority, the appellant contended that he did not obtain the balance confirmation of KCCB submitted that out of total 18 banks he had obtained the balance confirmation of the 14 Banks and only 4 banks were remaining with which the dealings and balances were small. He also submitted that it was general practice that banks do not issue the balance confirmations despite reminders. He further submitted that he had placed reliance on bank statement given to him by the company, which was ultimately found to be fake. He also submitted that it was impossible to detect the fraud as he was carrying out the statutory audit and not the investigation.
On examining the fake statement of account of KCCB which is said to have been given to the Appellant by the Company, the Appellate authority found that this is only a printed paper bearing no signatures or the seal of the bank. The authority also noted that the transactions are also in millions of rupees and not that of small amount.
“No suitable reply was given by the Appellant, as to how he assessed the Risk of Material misstatement in the financial statements, which would be very high while relying on a printed paper as evidence,” the authority said.
It was further noted that the Appellant was having knowledge of the relevant Auditing Standards and had assessed the risk of Material Misstatement as higher. Therefore, he had obtained the External confirmations of 14 Banks out of 18 Banks. However, no justifiable reason was explained as to why the External Confirmations of the remaining 4 banks were not obtained more so when the Bank statement of KCCB was nothing but a computer printout without any seal, signature or authentication.
It was therefore, concluded that the Appellant did not exercise due diligence expected from him and also did not obtain sufficient information for expression of opinion on the Financial Statements of the Company.
Subscribe Taxscan Premium to view the Judgment
