What Constitutes Due Diligence in CA Profession? Explained with Professional Misconduct Cases

Due diligence in the Chartered Accountancy profession is not an abstract idea. It is a legally enforceable standard, interpreted repeatedly by ICAI and, in recent years, by NFRA. Disciplinary orders show that due diligence has a clear operational meaning, and failure to meet it can lead to suspension, debarment, and heavy monetary penalties.

Whenever you audit, certify, verify, or issue a professional opinion, you are expected to apply independent judgment, verify material facts, follow the mandate strictly, and document your work properly. If you fail at any of these stages, regulators treat it as lack of due diligence.

We’ll explore what constitutes due diligence in practice, and what does not, using recent professional misconduct cases.

Due Diligence: The Legal Benchmark

Under the Chartered Accountants Act, 1949, lack of due diligence most commonly falls under Clause (7) of Part I of the Second Schedule, which deals with gross negligence in the conduct of professional duties. In serious matters, it is often read with other clauses relating to failure to obtain sufficient information, failure to disclose material facts, or conduct bringing disrepute to the profession.

“does not exercise due diligence, or is grossly negligent in the conduct of his professional duties;“

Practically, due diligence requires three things from you:

• proper verification,
• disciplined professional judgment, and
• the ability to prove your work through documentation.

If any one of these is missing, ICAI or NFRA may hold you guilty.

Due Diligence Explained with Cases

CA fails to Exercise Due Diligence While Certifying Form 15CB: ICAI suspends CA for Two Years [Read Notification]

ICAI removed a Chartered Accountant from the register for two years and imposed a fine of ₹25,000 for certifying Form 15CB without exercising due diligence.

The CA issued 57 Form 15CB certificates involving foreign remittances of approximately ₹89 crore. During investigation, he admitted on oath that he issued the certificates without verifying supporting documents and charged a nominal fee per certificate.

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ICAI held that certifying Form 15CB without verifying the nature of remittance, underlying agreements, or tax implications amounts to complete absence of due diligence. Reliance on third-party information and the defence of misuse of digital signature were rejected.

This case establishes that certification without verification is per se professional misconduct, irrespective of whether tax loss is immediately established. Read Full Case Here

Due Diligence in Audit Judgment and Reporting

ICAI finds CA Guilty of Professional Misconduct for not following Accounting Policies, Imposes INR 2 Lakh Fine [Read Order]

ICAI imposed a fine of ₹2 lakh on a CA for failing to apply and report deviations from accounting policies.

The auditor identified deviations in sales return accounting but chose to record them in management representation letters instead of reporting them appropriately. He also failed to obtain balance confirmations and ignored errors in cash flow statements.

ICAI held that due diligence requires you to report deviations, not merely document them internally. Even in the absence of mala fide intent, failure to apply accounting standards and audit procedures constitutes gross negligence. Read Full Case Here

ICAI imposes Rs. 1.25L Fine on CA for Deliberate Methodology Change for NAV Calculation, Causing Loss [Read Order]

ICAI fined CA ₹1.25 lakh for deliberately changing the methodology used for calculating Net Asset Value, contrary to the mandate given by the client.

The CA used an unsupported base year and failed to produce any documentary evidence justifying the deviation. Claims of oral discussions and implied approvals were rejected.

ICAI held that due diligence includes strict adherence to mandate. If you deviate from agreed methodology, you must have clear written approval and evidence. Acting on personal judgment without authority is not due diligence. Read Full Case Here

Due Diligence in Fraud Detection and Ongoing Audits

Non-Reporting of Fraudulent Practices and Bank Concurrent Audit Misconduct: ICAI reprimands Delhi CA and imposes Rs. 2 Lakh Fine

In a decision involving a concurrent audit of a Jammu & Kashmir Bank branch, ICAI imposed a ₹2 lakh fine on a CA for failure to detect and report fraudulent LC discounting that caused a loss of ₹29.22 crore.

The auditor repeatedly recorded “No Record Found” in audit reports without escalating the absence of data, despite large outstanding balances.

ICAI held that due diligence in a concurrent audit goes beyond mechanical system checks. Missing data, abnormal balances, and unexplained transactions are themselves red flags. Failure to act on them constitutes lack of due diligence. Read Full Case Here

Due Diligence in Statutory Filings and Declarations

ICAI debars CA for 60 Days with Fine for False Declaration of Company’s Registered Office Verification [Read Order]

ICAI removed a CA from the register for 60 days for falsely declaring personal verification of a company’s registered office.

The CA relied on video verification and virtual office documents. Physical inspection later revealed that the company did not operate from the declared address.

ICAI held that where the law requires confirmation of a physical registered office, due diligence requires physical verification. Certifying otherwise amounts to false declaration and lack of due diligence. Read Full Case Here

ICAI debars CA for 90 Days for False Declaration on INC-22 Using Rental Agreement and Utility Bills [Read Order]

In another May 2024 case, ICAI debarred a CA for 90 days for certifying INC-22 based solely on rental agreements and utility bills.

The CA declared that he had personally verified the registered office but had not visited the premises. ICAI held that due diligence requires you to actually perform what you certify. Documentary reliance cannot substitute personal verification when the form requires it. Read Full Case Here

Due Diligence as Audit Documentation Discipline: NFRA Perspective

Failure to Assemble Audit File within 60 days of Completion of Audit: NFRA Debars CA and Firm for 2 Years [Read Order]

NFRA debarred a CA and his firm for two years and imposed a ₹2 lakh penalty for failure to assemble the audit file within 60 days as required by SA 230 read with SQCI.

The authority held that audit documentation is the foundation of audit quality. Without a complete and timely audit file, it is impossible to verify whether audit procedures were performed at all.

NFRA treated failure to document and assemble the audit file as gross negligence by itself, regardless of what the auditor claimed to have done. This case establishes that due diligence must be demonstrable on record, not merely asserted. Read Full Case Here

When ICAI Accepted That Due Diligence Was Exercised

CA Proves Exercise of due Diligence while performing Auditing Financial statements of Company: ICAI finds CA not Guilty in Professional Misconduct

CAI found a CA not guilty of professional misconduct where the auditor had issued a clear disclaimer of opinion due to non-availability of documents.

The alleged misstatement was quantitatively insignificant, and the auditor had transparently disclosed limitations in the audit report. ICAI held that due diligence does not require certifying information that is unavailable, provided limitations are properly disclosed and documented.

This case shows that due diligence is about process, transparency, and judgment, not about guaranteeing outcomes. Read Full Case Here

What Due Diligence Means in Practice

From these cases, the regulatory position is settled. Due diligence requires you to verify material facts, follow the mandate strictly, question anomalies, and document your work fully and on time.

It is not satisfied by reliance on client representations, system-generated outputs, unsigned documents, or oral explanations. It also does not depend on intent. Even honest mistakes attract penalties if due diligence is missing.

In conclusion, ICAI and NFRA treat due diligence as a non-negotiable professional obligation. Whether you are certifying Form 15CB, auditing financial statements, verifying a registered office, calculating NAV, or compiling an audit file, you are expected to apply independent judgment and support it with evidence.

If you fail to do so, regulators will treat it as professional misconduct. If you can demonstrate verification, disciplined judgment, and proper documentation, the law will protect you.

Due diligence, as enforced today, is not about perfection. It is about responsibility, discipline, and proof.

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