ICAI reprimands CA Held Guilty of Professional Misconduct for Backdating Financial Statements, Contravenes legal standards

The Institute of Chartered Accountants of India ( ICAI ) has reprimanded the Chartered Accountant ( CA ) guilty of professional misconduct for backdating the financial statements. The committee observed that the CA cannot be excused for his mistakes as his conduct was in contravention of the provisions of law as well as ethical standards of the Institute.

A complaint has been filed against CA, Partner at M/s. M P Chitale & Company, Mumbai, by Managing Director of M/s Titanium Industries India Pvt Ltd., Bangalore. The complaint, filed in Form ‘I’ dated 02nd April 2019, alleges that the respondent signed audited financial statements of M/s Indo-American Chamber of Commerce ( IACC ) for the financial year 2015-16, backdated to 21st September 2016, despite discrepancies in the documents.

The Committee noted that all signatures by the complainant, signed on 12th November 2016, were removed from the financial statements and the Report to Executive Council ( EC ) was filed with the Ministry of Corporate Affairs ( MCA ).

The respondent signed the financial statements under the date of 21st September 2016, contrary to the requirements of Section 134 of the Companies Act, 2013 which mandated signatures only after managerial signatories have signed.

Further, the Committee observed that Dr. Lalit Kanodia, President of IACC, lacked an activated Director Identification Number (DIN) at the time of signing the financial statements, rendering his signature invalid. Despite this, the respondent failed to verify the authorization of the signatories, neglecting to mention Dr. Kanodia's DIN status in the Audit Report.

The Committee observed that even if it is presumed that the Respondent had signed the financial statements only after signing by both the Directors then it was his duty to check whether they were authorised to do so or not. In other words, he neglected the fact that Dr Lalit Kanodia was not holding a Director Identification Number (DIN) and did not even mention the same in his Audit Report.

The Disciplinary Committee noted that the above observations are in consonance with the views received from the Legal Directorate of the ICAI as received by the office on 17th November 2023. It is noted that apart from the contraventions of the above-mentioned provisions, the Respondent has also failed to substantiate his other submissions.

Further noted the Respondent-CA’s contention that once a certain set of accounts or documents is completed and approved by the concerned persons on a particular date then even if it is physically signed later, the date of signing can be put as of the date of approval.

In relation to this, the Committee noted that such statement further establishes the undesired conduct by the Respondent and observed that even if the date on which a certain document is signed differs from the date of its approval, one should not make personal assumptions regarding such delicate matters involving legal consequences and the same shall be performed under the domain of law with due caution.

The Disciplinary  Committee noted that it has been accepted by the Respondent that he did not sign the financial statements on 21st September 2016, then the question arises why he signed the financial statements by mentioning 21st September 2016 instead of 12th November 2016.

It was also noted that if the other signatories had mentioned the current date while signing then it was expected of the Respondent to either clarify regarding the same or mention the same date which was used by the others, but he signed the same on a back date which is in contravention of the legal standards. Hence, the Respondent should have signed the same on or after 12th November 2016.

The ICAI Committee observed that the Respondent-CA’s contention that the dates on financial statements were already struck off when he received them. However, it is noted that the Respondent has failed to substantiate his claim and it seems to be an afterthought merely to avoid sanctions.

The Committee noted that “the Respondent cannot be excused for his mistakes as his conduct was in contravention of the provisions of law as well as ethical standards of the Institute. The Respondent was negligent and did not take proper measures while performing his professional duties.”

Considering the arguments, submissions of the parties and documents on record, the Committee held that the Respondent is Guilty of Professional and Other Misconduct falling within the meaning of Item (2) of Part IV of First Schedule and Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Thus, the Committee ordered that CA be reprimanded under Section 21B(3)(a) of the Chartered Accountants Act.

To Read the full text of the Order CLICK HERE

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