ICAI removes name of Hyderabad CA for three months for issuing wrong turnover certificate for participating in tender

ICAI removes name of Hyderabad CA for three months for issuing wrong turnover certificate for participating in tender. Appellate Authority upheld the punishment

ABCAUS Case Law Citation:
ABCAUS 2224 (2018) (02) CA-AA

The appellant CA had challenged the decision of the Disciplinary Committee of the IVAI in holding him guilty of professional misconduct and awarding punishment of removing his name from the Register of Members for a period of three months together with a fine of Rs.50,000/-.

The Administrative Officer of Railway, (“Railway”) sent a letter and documents to Institute of Chartered Accountants of India (ICAI) containing allegations against a firm of Chartered Accountants (the CA firm). The ICAI treated the same as information within the meaning of Rule 7 of the Chartered Accountants (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007. (Misconduct Rules).

ICAI removes name of Hyderabad CA for three months

As per the complaint, the CA Firm had issued the turnover Certificates of a company (the Company) for two years which was in turn submitted to Railways by the Company being a party in one of the Joint Venture (JV) while participating in Tender Notice. However when the Railway asked the CA firm to submit the supporting documents like Audited balance sheet etc. in support of their certificates, they failed to do so. As per the audited financial statements of the company, the actual turnover was more than two times lesser than the turnover reported in the certificate issued by the CA Firm.

Director (Discipline) of ICAI found that the CA was Prima Facie guilty of Professional Misconduct falling within the meaning of Clauses (5), (6) and (7) of Part-I of the Second Schedule of the Chartered Accountants Act, 1949 which are as under:

“Part-I Professional Misconduct in relation to Chartered Accountants in Practice

A chartered Accountant in practice shall be deemed to be guilty of Professional Misconduct, if he –

(5) fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity;

(6) fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity;

 (7) does not exercise due diligence, or is grossly negligent in the conduct of his professional duties.”

Before the Disciplinary Committee of ICAI the CA in his written statement submitted that the Certificate was issued to the Company on the basis of sample checking and on the basis of the unaudited books of accounts produced before him and he has done detailed audit, post certification, resulting in certain rectification entries in the Sales Ledger for both the years.

The Committee doubted that the submissions relating to AS-7 and AS-9 are created by the Respondent as an afterthought. Accordingly, the Committee held the Respondent guilty with respect to charge mentioned in the complaint.

Before the Appellate Authority, the CA submitted that in case of civil construction contracts the value of works undertaken signifies the strength of the contractor and therefore turnover for them was the value of works performed. Therefore, irrespective of whether the contract was the one falling within AS-7 or AS-9, the corresponding gross value of work was reckoned for the turnover certificate. Further, it was reiterated that for the purpose of audited accounts, revenue was recognized on the basis of AS-9 on the net basis for those contracts where they were within the ambit of rendering of service. In case of those contracts that were covered by AS-7, the accounting was done on gross basis. Hence, there was apparent difference in the revenue in profit and loss account as compared to the value of work done reflected as turnover in the certificate issued. Therefore, it was submitted that the audited accounts and numbers in the certificate were correct.

It was also argued that the term “turnover” has not been defined anywhere. However, no satisfactory reply was given when his attention was drawn to various definition of turnover in many publications of the Institute of Chartered Accountants of India, including Statement of ICAI on CARO, Guidance note on terms used in Financial Statements and Guidance note on Audit under Section 44AB, wherein the turnover has been defined.

The Appellate Authority noted that in the said certificate, it was nowhere mentioned that it is either as per AS-7 or AS-9 and how the figures may differ from audited accounts. Even after audit of accounts no attempt was made to withdraw the earlier given certificates. Furthermore, when he was confronted that AS-7 and AS-9 merely prescribe the stage of accounting and nowhere prescribe a different definition of turnover, no convincing reply was given.

The Appellate Authority found no merit in the Appeal and dismissed it.

ICAI removes name of Hyderabad CA for three months

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One Response

  1. Sekhar naidu February 28, 2018

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