Failure to Request Original Accounting Records Raises Concerns: ICAI Rebukes CA for Neglecting Basic Audit Verification Procedures

The Institute of Chartered Accountants of India ( ICAI ) reprimanded the CA for neglecting audit verification procedures. The CA failed to request original accounting records from the complainant-CA and refused to cooperate in providing necessary audit evidence, especially regarding Tally software data lost in a fire, raising doubts about compliance with basic audit procedures.

The complainant-CA serving as a Resolution Professional since June 2018, was appointed by NCLT, Ahmedabad, on May 30, 2018. The respondent firm, M/s KMA & Co., represented by its CA acted as the Statutory and Tax Auditor of the company, including for the financial year 2017-18. Despite the complainant's appointment preceding the audit, the respondent audited and signed the financial statements on September 5, 2018.

The complainant - CA alleged that the Respondent has not asked for the original accounting records of the Company which were in the possession of the Complainant and had even refused to cooperate in providing necessary audit evidence and working papers based on which he audited the accounts of the Company for financial year 2017-18, particularly related to Tally software data lost in the fire, raising doubts about compliance with basic audit procedures.

The Disciplinary Committee observed that regarding conducting of the audit without original records by the Respondent and had not provided audit evidence and working papers upon request to the Complainant, noted that the Respondent has neither provided the Trial Balance, Ledger Accounts of Trade Payables, Loan Accounts nor the bills of Fixed Assets purchased. Even the Respondent has not provided the working paper(s) / audit evidence to

establish his submissions that he had conducted the audit after considering the original records of the Company.

The Committee acknowledged the complainant's claim that the original accounting records for FY 2017-18 were with the interim resolution professional since March 5, 2018, and then received by the complainant in June 2018. This raised doubts about the accuracy of the accounting records used by the respondent for the audit.

The Committee noted that the Respondent had contended to have audited provisional accounts of the Company for the period 01.04.2017 to 23.10.2017 (i.e., till the date when fire has occurred) signed as on 30.01.2018 and on comparing the provisional financial statements with the annual audited accounts of the Company for F.Y. 2017-18 signed as on 05.09.2018, it was found that there was a significant difference in the basis for preparation and the figures of provisional accounts vis a vis annual audited accounts of the Company for F.Y. 2017-18.

Further, considering a copy of a few purchase and sales bills provided by the Respondent, the Committee noted that the same were insufficient to demonstrate / establish that the Respondent had audited the Financial Statements taking into consideration the original records of the Company and that too only related to the month of January and February 2018 only.

Moreover, the Committee also noted that if the Respondent had declared to have examined the Bank Books, Cash Book, Journal, Ledger, Purchase Register, Sales Register as well as Stock Register for tax audit and that if tally data was available with him, he would have had provided all due working papers as envisaged in SA-230.

Accordingly, the Committee concluded that the Respondent conducted his audit without proper books and vouchers thereby, he is Guilty of Professional Misconduct falling within the meaning of Item (2), (7) and (8) of Part I of Second Schedule to the Chartered Accountants Act, 1949.

The ICAI disciplinary committee was of the view that ends of justice will be met if punishment is given to him in commensurate with his professional misconduct. Thus, the Committee ordered that CA. Keshav Vishwanath Chaubey, Thane be reprimanded and also fined Rs. 25,000/- imposed upon him payable within a period of 60 days from the date of receipt of the Order.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates