An Institute of Chartered Accountants of India (ICAI) Disciplinary Committee found CA. Shashank Shankar Mundle (Membership No. 034172) guilty of professional misconduct under Items (7) and (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. The case, initiated by CA. Pankaj Suresh Ahuja, concerned Mundle’s audit of a hospital for the financial year 2015-16.
The Committee determined that Mundle failed to exercise due diligence, specifically by not securing external confirmations for material trade receivables, which constituted 22.84% of the hospital’s balance sheet. Despite Mundle’s arguments regarding subsequent recoveries, aging analysis, internal controls, and the hospital’s operational closure being unrelated to the audit period, the Committee concluded that the lack of confirmation procedures for significant debtor balances constituted professional misconduct. Consequently, the Disciplinary Committee ordered that CA. Shashank Shankar Mundle be reprimanded under Section 21B(3)(a) of the Chartered Accountants Act, 1949.
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
PR-117 /201 B-DD/139/2018/DC/1480/2021
[DISCIPLINARY COMMITTEE [BENCH-II (2024-2025)]
[Constituted. under Section 21B of the Chartered Accountants Act, 1949]
ORDER UNDER SECTION 21B (3) OF THE CHARTERED ACCOUNTANTS ACT. 1949 READ WITH RULE. 19(1) OF THE CHARTERED ACCOUNTANTS (PROCEDURE OF INVESTIGATIONS OF PROFESSIONAL AND OTHER MISCONDUCT AND CONDUCT OF CASES) RULES, 2007
JPR-117/2018-DD/13912018/DC/1480120211
In the matter of:
CA. Pankaj Suresh Ahuja (M. No. 150843)
…Complainant
Versus
CA. Shashank Shankar Mundle (M. No. 034172)
M/s Mundle Venkatraman & Associates (FRN 112483W)
…Respondent
Members Present:-
Mrs. Rani S. Nair, IRS (Retd.), Presiding Officer and Government Nominee (through VC)
Shri Arun Kumar, IAS (Retd.), Government Nominee (through VC)
CA. anjay Kumar Agarwal, Member (in person)
CA. Cotha S Srinivas, Member (in person)
Date of Hearing : 28th March, 2024
Date of Order : 28th May, 2024
1. That vide Findings under Rule 18(17) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of. Cases) Rules, 2007, the Disciplinary Committee was, inter-alia, of the opinion that Shashank Shankar Mundle (M. No. 034172), Mumbai (hereinafter referred to as the ‘Respondent’) is GUILTY of Professional Misconduct falling within the meaning of Item (7) and (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
2. That pursuant to the said Findings, an action under Section 216 (3) of the Chartered Accountants (Amendment) Act, 2006 was contemplated against the Respondent and a communication was addressed to him thereby granting opportunity of being heard in person / through video conferencing and to make representation before the Committee on 28thMarch 2024.
3. The Committee noted that on the date of the hearing held on 28′hMarch 2024, the Respondent was present through video conferencing and made his verbal representation on the Findings of the Disciplinary Committee, inter-alia, requesting for a lenient view in his case. The Committee also noted that the Respondent in his written representation on the Findings of the Committee, inter-alia, stated as. under:
(a) The debtors of the hospital comprise of unpaid medical bills of patients which are paid by insurance companies and corporate employers. The hospital does not extend credit to any patient not covered by insurance or corporate employers.
(b) Each patient bill is supported by extensive documentation e.g. discharge summary, doctors noting, medical reports for diagnostics, pharmacy, etc., which are signed by various persons from different departments. This file is compiled and then sent to the TPA or corporate along with all supporting for payment.
(c) The Respondent’s vouching of the Sales Register/bills did not reveal any adverse observation in compliance relating to supporting documents.
(d) The Standards of Auditing/Guidance Note require that the auditor should obtain appropriate and sufficient audit evidence but the exact procedures to be adopted is left to the professional judgment of the auditor. In Respondent’s professional judgment and in compliance of Standards of Auditing and Guidance Note, he relied upon the following far more appropriate substantive/compliance procedures for audit of debtor balances:
(i) Verification of subsequent recoveries – 75% of the debts were recovered at the time of completion of audit.
(ii) Aging analysis – only 0.84% of debtors were outstanding for more than 2 years.
(iii) Robust existing internal controls; and
(iv) History of almost zero bad debts since the inception of the hospital.
(e) The closure of the Company’s operations happened 14 months after the completion of audit for FY 2015-16. The reason for the closure of the Company’s operations was bitter infighting between the promoters. There were no indications to suggest that the Company was going to shut down its operations till the completion of audit.
(f) The doubtful debts in the subsequent year were the effect of the closure and not its cause as there was no staff to follow-up and respond to queries raised by TPAs and corporates regarding the medical bills comprising the outstanding debtors.
(g) Despite making a full provision for unrecovered debts of Rs 0.50 crores, the Company made a Profit after Tax (PAT) of Rs 1.24 crores in F.Y. 2016-17.
(h) The Complaint is not even filed by the Company or any of its promoters. No bank, financial institution, Governmental authority, Company, its promoters or the public at large has been put to any disadvantage.
4. The Committee considered the reasoning as contained in the Findings holding the Respondent Guilty of Professional Misconduct vis-a-vis written and verbal representation of the Respondent.
5. Keeping in view the facts and circumstances of the case, material on record including verbal and written representation on the Findings, the Committee is of the view that external confirmation needs to be secured to reduce the audit risk to an acceptable level. In the present case, no confirmation of the balance of debtors was secured by the Company and the Respondent as an auditor. The figure of Trade Receivables in the Balance Sheet of the Company for the year ending 31stMarch 2016 amounted to Rs. 2,56,28,218/- which is 22.84% of the total size of Balance Sheet, which is Rs 11,21,83,619/-. This clearly indicates that the figures of Trade Receivables were material from the audit point of view and could not be ignored for confirmation of balances.
5.1 Thus, the Committee ‘held that Respondent did not exercise due diligence in the audit of the auditee Company and did not plan the audit in such a way as to apply additional substantive audit procedures where large number of party balances were not confirmed by the auditee Company.
5.2 Hence, professional misconduct on the part of the Respondent is clearly established as spelt out in the Committee’s Findings dated 7th February 2024 which is to be read in consonance with the instant Order being passed in the case.
6. Accordingly, the Committee was of the view that ends of justice will be met if punishment is given to him in commensurate with his professional misconduct.
7. Thus, the Committee ordered that CA. Shashank Shankar Mundle (M. No. 034172), Mumbai be Reprimanded under Section 21B(3)(a) of the Chartered Accountants Act 1949.
Sd/-
(MRS. RANI S. NAIR, IRS RETD.)
PRESIDING OFFICER AND GOVERNMENT NOMINEE
Sd/-
(SHRI ARUN KUMAR, IAS RETD.)
Sd/-
(CA. SANJAY KUMAR AGARWAL)
Sd/-
(CA. COTHA S SRINIVAS)
GOVERNMENT NOMINEE MEMBER MEMBER
