In the Matter of CA Spandan Sengupta (ICAI Disciplinary Committee)
ICAI Reprimands CA, Imposes ₹50,000 Fine for Audit and Disclosure Failures
Summary: The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI), in its order dated 23 October 2026, reprimanded CA Spandan Sengupta and imposed a fine of ₹50,000 for professional misconduct in the statutory audit of Jenson and Nicholsen (India) Limited for FY 2012-13. The proceedings originated from observations of the Financial Reporting Review Board concerning departures from applicable accounting standards, auditing standards, the Revised Schedule VI to the Companies Act, 1956, and statutory disclosure requirements. The Committee sustained findings of misconduct under Items (5), (6), (7), (8) and (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. The principal deficiencies concerned an unmodified audit opinion despite material financial reporting and going-concern issues, failure to recognise borrowing costs, improper treatment of irrevocable guarantee obligations, incomplete classification of advances and current liabilities, missing MSME disclosures, inconsistent depreciation methods and insufficient employee-benefit disclosures. The Committee emphasised that the auditor’s independent responsibility could not be discharged by relying on previous auditors, claiming limited experience or subsequently correcting the financial statements. The fine was directed to be paid within 60 days from receipt of the order.
The Committee examined the respondent’s audit reporting in circumstances where the company faced substantial liquidity difficulties, recovery proceedings and winding-up petitions. Although these matters were mentioned under the heading “Report on Other Legal and Regulatory Requirements”, the auditor had expressed an unmodified opinion. The Committee held that this reporting was inadequate under SA 570, SA 700 and SA 705 as applicable to the relevant financial year. The company had also stopped providing interest on bank and financial institution borrowings from 1 April 2006 following their classification as non-performing assets. The audit report referred to cumulative unprovided interest of ₹88,306.33 lakh up to 31 March 2013. The Committee found that NPA classification did not extinguish the borrower’s obligation to pay interest and that the accounting treatment contravened AS 16 and the relevant financial statement presentation requirements. In the Committee’s assessment, merely disclosing these matters elsewhere in the audit report was not a substitute for an appropriate audit opinion.
A separate significant issue involved ₹15,285.78 lakh of irrevocable guarantee obligations disclosed as contingent liabilities. The respondent contended that the dispute was longstanding, litigation remained pending and the likelihood of an outflow was remote. He also relied on the accounting treatment adopted by the previous auditor. Applying paragraph 14 of AS 29, the Committee considered the existence of quantified claims, recovery proceedings, present obligations and the availability of reliable estimates. It concluded that merely describing the liability as contingent did not satisfy the applicable recognition requirements. The Committee further held that the company had failed to disclose the nature of “Other Advances” under short-term loans and advances and “Other Liabilities” under other current liabilities, as required by Revised Schedule VI. The respondent’s statement that disclosures had been corrected from FY 2016-17 was rejected because compliance was required independently for FY 2012-13.
The Committee also sustained the allegation relating to the omission of particulars prescribed by Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006. Although approximately ₹7 lakh of MSME dues was disclosed, the other prescribed particulars relating to interest and payment delays were not adequately reported. The respondent’s reliance on immateriality and an assertion that no interest was payable did not establish compliance. Another finding concerned the use of different depreciation methods for the same class of assets without adequate justification, contrary to the relevant guidance requiring consistency. In relation to AS 15 on employee benefits, the Committee held that gratuity and leave-encashment disclosures were incomplete. The fact that no plan assets existed had to be expressly disclosed where required; it could not merely be inferred from figures in the balance sheet. The Committee nevertheless rejected the specific allegations concerning cash-flow reporting and CARO term-loan reporting after examining the supporting explanations. Considering the sustained violations, the respondent’s representations and the material on record, it imposed a reprimand and ₹50,000 fine.
Background of the Disciplinary Proceedings
The proceedings arose from observations of the Financial Reporting Review Board regarding irregularities in the general-purpose financial statements of Jenson and Nicholsen (India) Limited for FY 2012-13. The Committee examined compliance with applicable auditing standards, accounting standards, Revised Schedule VI to the Companies Act, 1956 and the MSMED Act, 2006.
The respondent was found guilty of professional misconduct under Items (5), (6), (7), (8) and (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949, dealing with material disclosures and misstatements, due diligence, sufficient information for an audit opinion and departures from accepted audit procedures.
Regulatory Reporting Did Not Substitute for a Modified Opinion
The company faced severe liquidity constraints, recovery proceedings and winding-up petitions. It had stopped providing interest on loans from banks and financial institutions after their classification as NPAs.
The respondent described these matters under “Report on Other Legal and Regulatory Requirements” while expressing an unqualified opinion. He explained that he had misunderstood the revised reporting format and believed that reporting the matters in that section amounted to qualification.
The Committee rejected this explanation. It held that the reporting did not satisfy the applicable requirements of SA 570, SA 700 and SA 705 concerning going-concern uncertainty and its effect on the audit report.
NPA Classification Did Not Remove Interest Obligations
The company had stopped providing interest from 1 April 2006, citing NPA classification by the lenders. The audit reporting reproduced in the findings referred to cumulative unprovided interest of ₹88,306.33 lakh up to 31 March 2013, included in contingent liabilities.
The Committee held that NPA classification does not absolve a borrower of liability to pay outstanding dues and interest. It found that non-provisioning violated AS 16 and the relevant Schedule VI requirements. The auditor’s reporting therefore failed to address significant departures in the financial statements appropriately.
Guarantee Liability Required Provisioning Assessment
The Committee examined ₹15,285.78 lakh of irrevocable guarantee obligations disclosed as contingent liabilities. The respondent referred to the age of the dispute, pending legal proceedings and uncertainty regarding the liability. He also relied on the approach adopted by the previous auditor.
The Committee found that quantified claims and recovery actions indicated a present obligation, a likelihood of outflow that was not remote and availability of a reliable estimate. On these facts, contingent disclosure alone did not comply with AS 29. The respondent was required to exercise independent professional judgment, irrespective of earlier accounting treatment.
Later Corrections Did Not Cure Earlier Omissions
The company had not disclosed the nature of “Other Advances” within short-term loans and advances or the composition of “Other Liabilities” under other current liabilities. The respondent acknowledged that these omissions had inadvertently not been reported and stated that corrective disclosures were introduced from FY 2016-17.
The Committee held that mandatory disclosure requirements apply separately to each financial year. Subsequent compliance did not cure the failure in FY 2012-13.
It also sustained the depreciation-related finding, noting the need for consistent application and documentary support. Continuing earlier disclosures without adequate examination was insufficient.
MSME Disclosures Mandatory Irrespective of Amount
The company disclosed approximately ₹7 lakh payable to MSME suppliers but omitted other particulars prescribed under Section 22 of the MSMED Act, 2006.
The respondent contended that no interest was payable and that the amount was immaterial compared with total payables. The Committee held that materiality could not override an express statutory disclosure requirement. It also recorded that the respondent had not produced documentary evidence supporting the assertion that no interest was due.
Employee Benefit Disclosures Found Incomplete
The Committee found that the company’s AS 15 disclosures concerning gratuity and leave encashment were inadequate. The respondent argued that the absence of plan assets was implicit because the entire obligation appeared as an unfunded liability.
The Committee held that inference from figures does not replace explicit disclosures required by the standard. Assurances of future compliance did not answer the reporting failure for the relevant year.
Some Allegations Not Established; Penalty Imposed
The respondent was cleared of the particular cash-flow allegation after supporting details established that relevant liabilities were included in working-capital movements without distorting operating cash flows. He was also cleared of the specific CARO term-loan reporting charge.
After considering the established failures and representations, the Committee imposed a reprimand and ₹50,000 fine, reinforcing the importance of independent audit judgment and complete statutory reporting.
