CA Proves Exercise of due Diligence while performing Auditing Financial statements of Company: ICAI finds CA not Guilty in Professional Misconduct

The Disciplinary Committee of the Institute of Chartered Accountants of India( ICAI )found the Chartered Accountant ( CA ) not guilty of professional misconduct as the CA was able to prove the exercise of due diligence while performing auditing financial statements of the company.

The Respondent was the auditor of 'M/S. Awasthi Medi Equipments Pvt Ltd' ( Company ). In the Balance sheet of the Company for the year ending on 31st March 2015, the amount of loan provided to and outstanding against M/S, Team Media and Hospitality Pvt Ltd' was disclosed as FRS. 85 lakhs however, in the Balance sheet of M/S. Team Bia and Hospitality Pvt Ltd. for the same period,

In the audited financial statements of the Company for the FY 2014-15, under 'Note-1 1 — Short Term Loans and Advances', an amount of Rs. 85 lakhs have been shown against M/S, Team Media and Hospitality Pvt Ltd. In notes to audited financial statements of 'M/S Team Media & Hospitality Pvt Ltd' for the FY 2014-15, under Note-3 — 'Short Term Borrowings', an amount of Rs. 1 00 crore has been shown against the Company,

It was alleged that the amount of loan/advance has been wrongly disclosed by the Respondent who has audited the financial statements of the Company for the FY 2014-15. It was viewed that the Respondent did not exercise due diligence while performing his professional duties and auditing the financial statements of the Company for the FY 2014-15.

The Counsel for the Respondent submitted before the Committee on the maintainability of the instant case in terms of Rule 8 of the Chartered Accountants ( Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases ) Rules 2007. The Counsel for the Respondent submitted that the aforesaid notice issued by the Disciplinary Directorate was time-barred, beyond limitation and unsustainable as the letter was required to be intimated to the Respondent within 60 days of receipt of the Information which was initially received by the Directorate on 02nd May 2016 from the Complainant.

The Counsel for the Respondent added that the Respondent in his Independent Audit report had made a disclaimer that he is not expressing any opinion on financial statements. The Counsel for the Respondent had categorically mentioned the disclaimer opinion para in his Audit report regarding the non-receipt of documents regarding short-term loans and advances and therefore the Respondent could not express his opinion on financial statements.

The Committee noted the defence of the Respondent wherein he submitted that the amount was not even 1% as compared to the size of short-term loans and advances shown in the balance sheet amounting to Rs. 18,95,40,372/. The Committee was of the view that the Respondent was prudent enough to discharge his duties related to the professional assessment, given the same, the Committee decided that the Respondent, be given the benefit of the doubt and absolved of the charge levelled against him.

The Committee comprising CA. Ranjeet Kumar Agarwal, Presiding Officer, Ms. Dakshita Das, I.R.A.S. ( Retd. ), Government Nominee and CA. Mangesh P Kinare, Member CA. Cotha S Srinivas, Member held that "the Respondent Not Guilty of Professional Misconduct falling within the meaning of Clause (7) Part — I of Second Schedule to the Chartered Accountants Act, 1949.”

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