In the Matter of CA Sunil Kumar Verma (ICAI Disciplinary Committee)
ICAI Reprimands Auditor for Accounting Standard and Disclosure Failures in Rashmi Cement Audit
Summary: The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI), in its order dated 23 October 2026, reprimanded CA Sunil Kumar Verma, partner of S K V & Co., for professional misconduct relating to the statutory audit of Rashmi Cement Limited for FY 2010-11. The proceedings arose from observations of the Financial Reporting Review Board (FRRB), which identified deficiencies in compliance with accounting standards, financial statement disclosures and statutory audit requirements. The Committee, through its detailed findings dated 29 January 2026, held the respondent 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. The principal violations concerned non-reconciliation of segment liabilities under AS 17, inadequate disclosures relating to share application money pending allotment, incorrect classification of finance charges under AS 3, misleading presentation of liabilities, non-classification of investments under Schedule VI to the Companies Act, 1956, and insufficient audit evidence supporting revenue recognition under AS 9. The Committee emphasised that explanations subsequently furnished during disciplinary proceedings could not substitute for disclosures required in the audited financial statements. It also rejected the contention that an accounting error becomes acceptable merely because it does not affect the overall financial statement totals.
A significant finding concerned the difference of approximately ₹4.06 crore between segment liabilities of ₹190.87 crore and enterprise liabilities of ₹186.81 crore. The respondent explained that the difference arose from inter-segment balances eliminated at the enterprise level and was immaterial relative to the company’s balance-sheet size. However, the Committee held that paragraph 46 of AS 17 expressly required reconciliation within the financial statements, and the auditor’s subsequent explanation did not remedy the original omission. The Committee also examined ₹75.99 crore of share application money pending allotment, observing that its materiality warranted appropriate disclosures under the applicable Schedule VI framework. Regarding cash-flow reporting, it found that finance charges of ₹15.71 crore had been incorrectly classified under operating activities rather than financing activities, contrary to AS 3. The argument that borrowings supported day-to-day business operations was rejected because the purpose for which funds were borrowed did not justify the classification adopted. Further, liabilities of ₹6.08 crore, comprising mainly capital-goods creditors and certain government dues, had been described as “Other Finance” under sundry creditors. The Committee considered this description misleading, particularly because the amount represented nearly 20% of current liabilities. It also sustained the finding concerning failure to classify long-term investments as trade investments or other investments. On revenue recognition, the respondent maintained that sales were recognised upon dispatch because transactions were conducted on an ex-factory basis. However, the Committee found that the supporting invoices did not establish the asserted delivery terms and that the auditor had failed to obtain sufficient appropriate evidence demonstrating the transfer of significant risks and rewards required under AS 9. A separate AS 3 finding relating to the reporting of loans and advances in the cash-flow statement was also sustained.
The Committee nevertheless did not uphold every allegation. It accepted the respondent’s documentary explanations on several matters, including electricity expense provisioning, diminution in investment value, cash verification, related-party disclosures, a typographical error in CARO reporting and identification of the audit-signing location. It also rejected procedural objections concerning the timing of communications and referral of the disciplinary matter, finding that the applicable procedural requirements had been satisfied. During the punishment hearing, the respondent referred to his written and oral submissions, asserted that the audit of Rashmi Cement Limited was his first statutory audit engagement and requested leniency. After considering the nature of the established violations, the documentary record and the respondent’s representations, the Committee concluded that disciplinary action was warranted but imposed the penalty of reprimand under Section 21B(3)(a) of the Chartered Accountants Act, 1949. The decision underscores that a statutory auditor must independently evaluate compliance with accounting standards, ensure transparent classification and disclosure of material financial information, and obtain sufficient appropriate audit evidence before expressing an opinion. Case No. PPR/20/2015/DD/20/INF/2015/DC/921/2018; Order dated 23 October 2026.
The ICAI Disciplinary Committee has reprimanded CA Sunil Kumar Verma, partner of S K V & Co., for professional misconduct arising from the statutory audit of Rashmi Cement Limited for Financial Year 2010-11.
The Committee upheld findings concerning failures in segment reconciliation, cash-flow presentation, revenue recognition and statutory disclosures. It rejected the contention that subsequent explanations or assertions of immateriality adequately answered the identified non-compliances.
Proceedings Originated From Financial Reporting Review
The matter arose from observations of the Financial Reporting Review Board, which identified alleged irregularities in the company’s general-purpose financial statements.
The disciplinary proceedings examined compliance with accounting standards, Schedule VI to the Companies Act, 1956, audit guidance and reporting requirements.
The Committee ultimately found the respondent guilty under Items (5), (6), (7), (8) and (9) of Part I of the Second Schedule to the Chartered Accountants Act.
These provisions concern material disclosures and misstatements, due diligence, sufficient information for an audit opinion and departures from accepted audit procedures.
However, the respondent was acquitted of several individual allegations where the evidence supported his explanation.
Segment Reconciliation Had to Appear in Financial Statements
A principal finding concerned the difference between segment liabilities and enterprise liabilities.
The respondent explained that the approximately ₹4.05 crore difference arose from inter-segment balances offset at the enterprise level. He also argued that the amount was small compared with total assets.
The Committee held that paragraph 46 of AS 17 required reconciliation within the financial statements.
Providing the reconciliation during disciplinary proceedings did not cure its absence from the audited accounts. The auditor’s reporting that accounting standards had been complied with was therefore found deficient.
Material Share Application Money Required Disclosure
The proceedings also examined ₹75.99 crore of share application money pending allotment, including issues relating to diluted earnings per share and presentation.
The respondent submitted that shares were allotted only in the subsequent financial year and defended the accounting treatment.
The Committee emphasised the amount’s materiality against a balance-sheet size of approximately ₹608 crore. It found that the required disclosures under the applicable Schedule VI framework had not been made and that the auditor failed to draw attention to the non-compliance.
The finding reinforced the auditor’s responsibility to examine presentation and disclosure independently of management’s explanation.
Finance Charges Incorrectly Classified as Operating Cash Flows
The Committee found that ₹15.71 crore of finance charges had been included under operating activities instead of financing activities in the cash-flow statement.
The respondent argued that the borrowings supported day-to-day operations and that the classification did not affect total net cash flows.
The Committee rejected that reasoning. Borrowings ordinarily support business operations, but that fact did not justify the classification adopted in this company’s accounts.
It held that the presentation violated AS 3 and found the respondent grossly negligent in confirming compliance.
“Other Finance” Description Was Misleading
The company presented approximately ₹6.08 crore under “Other Finance” within sundry creditors. The respondent explained that this largely comprised capital-goods creditors, together with government dues.
The Committee found that the description failed to communicate the liabilities’ actual nature.
The amount represented nearly 20% of current liabilities, making the classification significant despite being approximately 1% of the total balance sheet.
It also upheld a finding concerning failure to classify long-term investments as trade investments or other investments, as required by Schedule VI.
Dispatch-Based Revenue Recognition Needed Evidence
The respondent defended recognition of sales on dispatch by asserting that transactions were on an ex-factory basis.
However, the Committee found that invoices subsequently produced for the cement division did not specify those delivery terms.
Under AS 9, the relevant inquiry was whether significant risks and rewards of ownership had passed to the buyer. Dispatch alone did not establish compliance.
The Committee concluded that the auditor had not obtained sufficient appropriate evidence supporting the stated recognition policy.
It also sustained a separate AS 3 finding concerning loan-related cash-flow disclosures, rejecting the explanation that repayment within the year adequately addressed the presentation issue.
Procedural Objections Rejected; Several Charges Not Established
The Committee rejected objections concerning procedural timelines and referral of the matter. It recorded that the information letter had been issued within 60 days of the matter being treated as valid information.
On other allegations, evidence supported the respondent. These included electricity provisioning, investment diminution, cash verification, related-party disclosures, a CARO typographical error and identification of the audit-signing location.
The findings therefore distinguished established audit failures from allegations adequately answered by documents.
Reprimand Ordered
After considering the respondent’s written and oral representations, including that this was his first statutory audit engagement, the Committee imposed a reprimand.
The order highlights that auditors must assess classification, disclosure and supporting evidence, even where an error does not change the financial statements’ overall totals.
