ICAI Finds CA Guilty of Misconduct for Failing to Audit Cash Flow Statement of NBFC Linked to Instant Loan App Scam Probe [Read Order]

The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) recently reprimanded a Chartered Accountant (CA) after she was found guilty of professional misconduct for failing to audit and comment upon the Cash Flow Statement forming part of the Financial Year (F.Y.) 2017-18 financial statements of a Non-Banking Financial Company (NBFC) that was being investigated for issues surrounding a micro instant loan app scam.

The complaint was filed by an officer of the Deputy Registrar of Companies (ROC) against the CA alleging professional misconduct for failing to audit and provide her opinion on the cash flow statement of M/s Pioneer Financial & Management Services Limited, a non-banking financial company (NBFC) that itself was under probe in connection with an instant loan app scam.

As per the Committee’s findings, the arraigned CA, while certifying Form AOC-4 filed with the ROC failed to ensure that the company’s cash flow statement - being a mandatory component for companies not classified as ‘small companies’ was duly audited and attached.

This lapse by the CA was considered a serious breach of professional responsibility, particularly since the omission occurred in the audit of an NBFC, which is a regulated financial entity under statutory oversight.

The CA appeared in person before the Committee where she acknowledged her mistake and submitted that the omission was unintentional. She assured the panel of corrective measures and sought leniency, stating there was no mala fide intent behind the lapse.

After considering her submissions, the Committee, chaired by CA Charanjot Singh Nanda, CA Chandra Wadhwa (Government Nominee), CA Mahesh Shah (Government Nominee), and members CA Pramod Jain and CA Ravi Kumar Patwa observed that:

“Due diligence was not exercised by the Respondent in execution of her professional responsibilities both as the Statutory Auditor of the Company for the F.Y. 2017-18 and also the certifying professional of the Company for Form AOC 4 filed for the said year with ROC as she failed to audit and to provide any comment or her opinion on Cash Flow Statement for FY 2017-18 and thereafter, accordingly failed to ensure that the Cash Flow Statement of the Company is attached with Form AOC-4 for the said financial year.”

Invoking Section 21B(3)(a) of the Chartered Accountants Act, the Committee ordered that Agarwal be reprimanded for the established misconduct, deeming it an appropriate punishment commensurate with the lapse.

A second charge was also leveled against the CA concerned the company’s alleged connection with entities under investigation in an “instant loan app” scam, wherein certain NBFCs and digital lending platforms were accused of engaging in unauthorised lending and fund transfer practices.

The complainant alleged that the Respondent CA, being the statutory auditor, had failed to identify or report such irregularities in the company’s financial statements.

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

Upon verification the ICAI Committee found that there was no material evidence establishing whether the company was using the personal loan apps during the alleged period, or whether any personal loans were availed using the personal loan App of the company during the alleged period.

Accordingly, the committee held that the CA cannot be held liable for non reflection of instances of providing such loans or non-diosclosure of the name of such loan app in the financial statement of the company.

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