AS-18 Not Applicable to SME Entities: ICAI drops Non-Disclosure of Related Party Transaction Allegation against CA [Read Order]

The Institute of Chartered Accountants of India’s ( ICAI ) disciplinary committee dropped disciplinary proceedings against the Chartered Accountant ( CA ) ruling that AS-18 not applicable to SME entities that is the disclosure of related parties.

Braja Sundar Pradhan filed a complaint against CA Ashwani Mohan alleging professionalmisconduct in connection with the statutory audit of Helvetica Industries Pvt. Ltd. for FYs 2008-09 to 2011-12.

It was alleged that the CA has siphoned off funds amounting to ₹1.48 crore received by the company to a related entity, Kee Pharma Ltd. (KPL) without proper disclosure. It was submitted that the CA failed to report or disclose related party transactions as required under Accounting Standard (AS) 18.

Your Guide to GST Tariffs & Exemptions, Click here. 

The committee, after hearing the submissions, dropped all charges against the CA. The ICAI found that the impugned transactions were recorded in the books of accounts, reflected in the audited financial statements, and were part of a running loan account between the company and KPL.

Additionally, the bench noted the CA’s submission that AS-18 was not applicable to the company as it qualified as a Level II/Level III (SME) entity under ICAI guidelines prevailing at the relevant time.

‘While the transactions were recorded in the financial statements, however, given the exemption for Level 2 and Level 3 (SME) entities and the absence of a direct allegation in the complaint, the Committee concluded that the Respondent's actions did not constitute professional misconduct’ observed the committee.

Therefore, the ICAI found CA not guilty of professional misconduct under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

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