Uttam Kumar Sahoo Vs CA Khushbu Bansal (ICAI Disciplinary Committee)
ICAI Reprimands Auditor for Share Classification and Schedule III Disclosure Failures
Summary: The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI), by its order dated 23 October 2026, reprimanded CA Khushbu Bansal, partner of Rahul Bansal & Associates, for professional misconduct in the statutory audits of Ispat Sheets Limited covering FY 2014-15 to FY 2020-21. The proceedings arose from a complaint by Uttam Kumar Sahoo, Registrar of Companies, Guwahati, following scrutiny of the company’s financial statements. The principal allegation was that the auditor failed to appropriately report incorrect asset classifications and the absence of mandatory schedules and breakups relating to inventories, non-current investments, trade receivables and short-term loans and advances. The Committee held her guilty under Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949, concerning failure to exercise due diligence or gross negligence in professional duties.
The major controversy concerned equity shares classified as inventories and described as “Finished Goods”. The recorded inventory balances were approximately ₹35.80 crore for FY 2014-15 and FY 2015-16 and ₹35.55 crore for subsequent years. The respondent contended that the shares were held as stock-in-trade in accordance with the company’s business objects and Accounting Standard (AS) 13, and that preceding auditors had followed the same classification since FY 2004-05. The Committee, however, found that the company had not disclosed a specific accounting policy for inventories, that the recorded amounts had remained substantially stagnant, and that describing shares held for trading as “Finished Goods” was inappropriate even if the respondent’s stock-in-trade argument were accepted. The Committee further considered the inventory valuation policy and carrying amounts inconsistent with AS 2, particularly given that the inventory represented approximately 85% of the balance-sheet size. The respondent disputed the applicability of AS 2 because shares held as stock-in-trade are excluded from its scope. The Committee nevertheless maintained its disciplinary finding on the facts before it.
Separately, the Committee found that the company’s financial statements did not provide the necessary supporting classifications and disclosures required under Schedule III to the Companies Act, 2013. In particular, the notes did not adequately classify non-current investments, trade receivables and short-term loans and advances. The prescribed distinction between secured and unsecured advances, good and doubtful amounts, and related-party and other advances was missing. During the hearing, the respondent was shown financial statements and notes, including those for FY 2015-16, but the Committee recorded that satisfactory explanations were not provided. Her defence that discrepancies in AOC-4/XBRL filings could not be attributed to her was considered alongside the financial statements and supporting documents examined by the Committee.
The respondent also questioned the validity of the complaint and the fairness of the disciplinary process, referring to alleged defects in authorisation, signature, registration, supply of documents and the scope of the charges. The Committee noted that certain procedural objections had been raised only at the punishment stage under Rule 19 rather than at the earlier hearing. After considering the findings dated 22 December 2025, her written representations and her oral submissions, the Committee concluded that professional misconduct stood established. It ordered that CA Khushbu Bansal be reprimanded under Section 21B(3)(a) of the Chartered Accountants Act, 1949. The order did not impose any monetary fine or suspension.
Background of the Complaint
The complaint was filed by Uttam Kumar Sahoo, Registrar of Companies, Guwahati, following scrutiny of the financial statements of Ispat Sheets Limited. The allegation concerned the respondent’s failure, as statutory auditor, to qualify her reports despite incorrect asset classification and missing schedules or item-wise breakups across seven financial years.
The Director (Discipline) formed a prima facie opinion against the respondent on 24 October 2024. Following the disciplinary hearings and consideration of the documentary record, the Committee found her guilty under Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
Auditor Defended Shares as Stock-in-Trade
The respondent argued that the equity shares were held as stock-in-trade, consistent with the company’s business activities and objects in its Memorandum of Association. She relied on the distinction between shares held for trading and shares held as investments, contending that the accounting treatment was consistent with AS 13.
She submitted that preceding auditors had classified the shares as inventories since FY 2004-05 and that no regulatory authority had previously objected. She also disputed the Committee’s valuation-related observations by pointing to the exclusion of shares held as stock-in-trade from the scope of AS 2. These were defences advanced by the respondent; the Committee did not accept them as sufficient to displace its findings concerning presentation, accounting policies and disclosure failures.
“Finished Goods” Caption Found Inappropriate
The Committee examined inventory figures of approximately ₹35.80 crore in FY 2014-15 and FY 2015-16, and approximately ₹35.55 crore from FY 2016-17 onwards. The figures remained substantially unchanged and no specific accounting policy for inventories had been disclosed in the notes to accounts.
When questioned about the stagnant carrying amounts, the respondent did not provide a satisfactory explanation, according to the Committee. It reasoned that even if the shares were accepted as stock-in-trade, describing them as “Finished Goods” remained inappropriate. The distinction is material because Schedule III separately identifies finished goods and stock-in-trade acquired for trading.
Inventory Policy and Valuation Raised Concerns
The Committee criticised the absence of a specific accounting policy explaining the classification and valuation of the shares. Since inventories represented approximately 85% of the company’s balance-sheet size, it regarded the deficiencies as significant.
The Committee considered the carrying amounts and inventory valuation policy inconsistent with AS 2. However, the respondent’s objection to the applicability of AS 2 must be distinguished from the Committee’s finding: AS 13 expressly discusses shares and securities held as stock-in-trade, while AS 2 contains a scope exclusion for such financial instruments. The disciplinary decision should not be read as establishing that all equity shares necessarily fall within AS 2.
Mandatory Breakups Were Missing
The Committee separately examined compliance with Schedule III to the Companies Act, 2013. It found omissions in the prescribed classification and disclosure of non-current investments, trade receivables and short-term loans and advances.
During the hearing, the respondent was shown the company’s FY 2015-16 financial statements and questioned about missing investment details. The Committee also identified the absence of classifications distinguishing secured and unsecured advances, good and doubtful balances, and advances to related parties and others. These disclosures are specifically addressed in Schedule III’s balance-sheet presentation requirements.
XBRL Defence and Procedural Objections Considered
The respondent maintained that discrepancies in AOC-4/XBRL filings could not be attributed to her because she had not prepared or filed those forms. She asserted that the signed financial statements contained the necessary disclosures. However, the Committee’s findings also referred to the financial statements and notes examined during the proceedings.
She further objected to the complaint’s authorisation, signature and registration and alleged a denial of natural justice. The Committee noted that certain objections were raised only at the Rule 19 punishment stage. It maintained the earlier findings after considering the respondent’s representations.
Reprimand Ordered
The respondent sought leniency, citing the technical nature of the lapses, absence of mala fide intent or loss and willingness to rectify omissions. The Committee considered the record and ordered a reprimand under Section 21B(3)(a), without imposing a fine or suspension.
The decision reinforces the responsibility of statutory auditors to examine the appropriateness of asset classifications and supporting disclosures, even where an accounting treatment has continued for several years.
Cases Discussed
1. CIT Vs Sutlej Cotton Mills — Cited by the respondent in support of the proposition that whether shares are held as investments or stock-in-trade depends upon the purpose and circumstances of acquisition and holding. The uploaded findings do not provide a complete citation.
2. CIT Vs Associated Industrial Development Company — Cited by the respondent on the distinction between investment holdings and trading stock. The uploaded findings do not supply a complete citation.
3. ICAI Vs P.K. Manoharan — Cited by the respondent to distinguish an error of judgment from professional misconduct. The uploaded findings do not supply a date or full citation.
4. KC Chaturvedi Vs ICAI — Cited by the respondent concerning management’s responsibility for preparing financial statements and the auditor’s verification and reporting obligations. The uploaded findings do not supply a complete citation.
