CA Reprimanded by ICAI for Insufficient Verification of LLP Partners During Form 8 Certification

The Committee ordered that CA be reprimanded and also a Fine of Rs. 25,000/- be imposed upon him payable within a period of 60 days from the date of receipt of the Order.
CA Reprimanded - ICAI for Insufficient Verification of LLP - Certification - TAXSCAN

The Institute of Chartered Accountants of India ( ICAI ) has reprimanded the Chartered Accountant ( CA ) with a fine of Rs. 25,000/- for insufficient verification of partners  of Limited Liability Partnership ( LLP ) during the certification of Form 8.

The Respondent-CA was the auditor of M/s. Biscoot Records LLP (Earlier known as M/s. Bombay Track LLP) ( “LLP”) and the Complainant is a partner in the LLP. According to the Respondent, he signed financial statements for financial year 2013-14 and 2014-15 of the said LLP.

The Committee noted that the charge against the Respondent-CA was that he had illegally expelled the Complainant as a partner without the complainant’s resignation and added a new partner in the Balance Sheet of financial year 2014-15.

The deed of reconstitution dated 13.11.2014 indicates that the complainant was listed as retired from the LLP as of that date, with the new person admitted as a new partner. According to the complainant, they received this deed from ICICI Bank and it was utilised by another partner as part of the documentation for opening a bank account. The deed was signed by the complainant, the other two existing partners, and the new partner admitted. Importantly, the respondent was not involved in this process and did not dispute the validity of the reconstitution deed.

Upon examination of the financial statement for the fiscal year 2014-15, it was noted that the respondent-CA signed the statement on 04.09.2015, and it was also signed by the new partner. Notably, the statement indicated a zero balance in the complainant’s capital account. This suggests that the respondent-CA relied on the Deed of Reconstitution dated 13.11.2014 during the audit, indicating awareness of the changes in the LLP.

However, a discrepancy arose upon reviewing Form 8 filed by the LLP with the Registrar of Companies (ROC). The form was digitally signed by the complainant as a partner, and it was verified by the respondent-CA.

Form 8, a statement of account and solvency required by Rule 24 of the Limited Liability Partnership Rules, 2008, is to be prepared by the LLP and verified by professionals. This highlights a contradiction between the information provided in the financial statement and the digitally signed Form 8, raising questions about the accuracy of the financial reporting process.

The Disciplinary Committee noted that as per Form 8, the Respondent-CA was supposed to verify the particulars contained in the Statement of Account and Solvency including the Statement of Assets and Liabilities for the year end and the Income and Expenditure for the said period from the accounting records and other books and papers of the LLP.

It was noted that as per the deed of reconstitution, the complainant retired from the LLP, and Form 8 was digitally signed by them as a partner. However, the respondent certified the form without raising objections. The respondent-CA’s defence was based on the complainant’s prior signature on Form 11, filed with the ROC, and the lack of updated records regarding the complainant’s retirement. Therefore, the respondent-CA certified Form 8 with the complainant listed as a partner. However, this defence was deemed untenable, considering the respondent’s awareness of the changes in the LLP.

The Disciplinary Committee noted that the respondent was obligated to confirm any subsequent changes in the LLP from relevant documents. According to sub-section (2) of section 25 of the LLP Act, 2008, if there are changes in partnership, such as a person becoming or ceasing to be a partner, or changes in the name or address of a partner, the LLP must file a notice in Form 4 with the Registrar.

Further, for the purposes of sub-section (3) of section 25 of LLP Act, 2008, in respect of notice of a person becoming a partner, the Form 4 shall include a statement signed by the incoming partner that he consents to become a partner. However, the Respondent has not provided any evidence that he had verified the said forms before certifying Form 8.

The ICAI Committee noted that the complainant failed to provide any documentary evidence to support their claim that the respondent illegally expelled them from the LLP. It was emphasised that internal matters of the LLP, such as partner expulsion, cannot be attributed to the respondent.

Additionally, the respondent-CA’s duty was solely to certify Form 8 based on the verification of relevant records and documents. However, the respondent did not appear to have taken adequate steps to confirm the partners of the LLP at the time of certifying Form 8.

Consequently, the CA was found guilty of professional misconduct under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949, for failing to exercise due diligence while certifying Form 8.

Thus, the Committee ordered that CA be reprimanded and also a Fine of Rs. 25,000/- be imposed upon him payable within a period of 60 days from the date of receipt of the Order.

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