CA signs Financial Statements not signed by Directors: Disciplinary Committee finds Guilty [Read Order]

The Chartered Accountant (CA) signed the financial statements which were not signed by the directors. The disciplinary committee of Institute of Chartered Accountant of India (ICAI) found guilty of professional misconduct.

The committee took note of the fact that the Director (Discipline) in the current case found the respondent CA prima facie guilty of professional misconduct in accordance with items (5) and (7) of Part 1 of the second schedule to the Chartered Accountants Act, 1949 on the following charges regarding the audit of M/s SLS Tubes Private Limited that the respondent conducted for the financial year 2012–2013.

The allegations against the accountant are:

• The financial statements of the company did not disclose that the respondent did not comply with the disclosure requirements of AS-9 with regard to the figures of gross sales less excise duties and fryer break up of manufacturing sales and trade sales (if any).
• The respondent omitted or reported insufficient information on the contingent liabilities
• The respondent neglected to mention that, in violation of the requirements of Accounting Standard 3, the Company did not create and attach a cash flow statement with the balance sheet for the year 2012–2013.
• The respondent failed to report that in note no.4 of the Balance sheet, working capital of Rs. 16,71,51, 723 taken from the Bank was shown under Long term borrowings.
• The respondent signed the balance sheet and profit and loss account without the same being signed by two directors, which is in violation of Section 215 of the Companies Act, 1956.
• The Respondent neglected to disclose that the firm made advances of Rs. 11,45,61,725 while suffering significant losses, and that too without charging interest.

The respondent's counsel argued that the financial statements had recently been signed by his client, the respondent, and that CA was the true auditor. Just relying on another auditor, his client had signed and returned the charge to CA.

The Committee thus highlighted that the Respondent had neglected to disclose important financial information in the financial statements in addition to engaging in egregious negligence in the performance of her professional obligations.

In light of this, the Committee found that the Respondent had engaged in professional misconduct as defined by Items (5) and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Regarding the claimed allegations, the Committee noted that the cash flow statement was optional throughout the year of 2012–2013; hence, failure to report it cannot be construed as misconduct on the part of the Respondent. As a result, the Committee decided to clear the Respondent of this accusation.

The Working Capital is the capital of a business used for its day-to-day trading operations, and its disclosure under long term borrowings is inappropriate, according to the Committee after reading page C-31 of the Prima-facie Opinion. Working Capital is the capital of a business used for its day-to-day trading operations.

The Committee noted that, in contrast, the Respondent had claimed that no short-term money had been obtained and utilised for long-term investments in her CARO report (page C-22 of the Prima-facie opinion).

To Read the full text of the Order CLICK HERE

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