The Institute of Chartered Accountants of India’s Disciplinary Committee (Bench-II) has reprimanded CA. Arun Rathi of Jodhpur for professional misconduct. The committee found Mr. Rathi guilty of professional misconduct under various clauses of Part I of the Second Schedule to the Chartered Accountants Act, 1949. The case originated from a complaint regarding his audit of an organization, where discrepancies were noted in the bank reconciliation statement and the inclusion of transactions not pertaining to the audited financial year. Despite Mr. Rathi’s defense, which included claims that certain revenue/expenses were considered after the close of the financial year and that his actions complied with the International Association of Lions Clubs’ by-laws, the committee determined that he failed to diligently examine the bank reconciliation statement in context of the bank statement. The committee highlighted that an auditor must report known misstatements and found his defense regarding the change of governors each year insufficient. The presence of post-dated cheques being adjusted to reflect assets on the balance sheet date and improper accounting of cheques pending signatures were also cited as issues, establishing his professional misconduct.
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
[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
[PR/148/20191DD/180/2019/DC/1463/2021]
In the matter of:
Shri Sudhir Sogani….Complainant
Versus
CA. Arun Rathi ….Respondent
Members Present:-
CA Ranjeet Kumar Agarwal, Presiding Officer (in person)
Mrs. Rani S. Nair, IRS (Retd.), Government Nominee (through VC)
Shri Arun Kumar, IAS (Retd.), Government Nominee (in person)
CA. Sanjay Kumar Agarwal, Member (in person)
CA. Cotha S Srinivas, Member (through VC)
Date of Hearing : 10th April, 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 Arun Rathi (hereinafter referred to as the ‘Respondent’) is GUILTY of Professional Misconduct falling within the meaning of Item (6), (7) and (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
2. That pursuant to the said Findings, an action under Section 21B (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 10thApril 2024.
3. The Committee noted that on the date of hearing held on 10thApril 2024, the Respondent was present in person before it and made his verbal representation on the Findings of the Disciplinary Committee, inter-alia, requesting for a lenient view in his case and assured the Committee that he will not repeat such errors in the future. The Committee also noted that the Respondent in his written representation on the Findings of the Committee, inter-alia, stated as under:
a) The auditee has made specific remarks in the receipt and payment account as well as in the Income and Expenditure Account after the line of totaling and even above the Signature Line mentioned and highlighted as under:
“Note: Certain Revenue / Expenses were made after the close of the Lionestic year and the same have been considered in above financial statements”.
As an effect of such revenue/expenses, which are a part of the Bank Reconciliation Statement, the Bank balance as per the Bank statement on 31st March 2015 is equal to the Bank balance as per the Balance Sheet date i.e. 30 June 2014. In case there would have been any other transaction not reportable in Bank Reconciliation Statement, then the balance on such dates would be different, however, between the said dates in the Bank statement, there were only these transactions appearing in the Bank Reconciliation Statement. Hence, the balance is supposed to be matched in such case and the same cannot be treated as negligence.
b) His actions are in strict compliance of and in consonance with the Constitution and By-Laws of the International Association of Lions Clubs.
c) The statement of account/financial accounts/fund position was prepared by the District Governor, Secretary and Treasurer of the outgoing Committee after incorporating all the transactions pertaining to their tenure (even if payments/receipts happened subsequent to 30.06.2014). Hence, the transactions in the Bank statement after 30.06.2014 have been accounted for in the Financial Statements prepared as on. 30.06.2014 and the final balance of the Bank/cash of Rs. 30,868/- was handed over to the new Committee on 18.06.2015 and the Bank account was closed by the outgoing Committee. Thus, the financial statements constituted all transactions executed by the outgoing Committee till 30.06.2014 including entries reflected in the Bank statement after 30.06.2014, but the same pertained to the transactions carried prior to 30.06.2014 by the outgoing Committee.
d) The true and fair view of the Financial Statements as a whole has not been vitiated/debauched in any manner whatsoever.
e) When all the transactions in the bank reconciliation statement are verifiable from the bank statements, there can be no question of any misappropriation of funds by the Club.
f) The relevant factors were also captured in the Management Representation letter obtained during audit.
4. The Committee considered the reasoning as contained in Findings holding the Respondent Guilty of Professional Misconduct vis-a-vis written and verbal representation of the Respondent. On consideration of the representation of the Respondent, the Committee was of the view that the same were basically a reiteration of the submissions made by the Respondent during the course of hearing, due cognizance of which has already been taken by the Committee before arriving at its Findings in the instant case.
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 an auditor is required to examine the Bank reconciliation statement in context of Bank statement produced on record and that Bank reconciliation statement is prepared for the cheques issued but not presented for the payment and cheques presented for deposit but not cleared/credited to the account. The Complainant during the course of the hearing cited discrepancies by mentioning that the audit had not been properly done where certain entries which do not relate to this year have been made a part of the audit report.
5.1 The Committee noted that the Respondent’s only defence is change of Governor every year. The Committee noted that the Respondent was required to work impartially and diligently and was required to report known misstatements in his report. The stand adopted by the Respondent is also not justified because post-dated cheques are transactions pertaining to subsequent period that cannot be adjusted to show the status of an asset as existing on the Balance Sheet date.
5.2 The Respondent failed to report that there was improper accounting in books of Club as cheques which were pending for signatures were considered in the books of Club and subsequently in Bank Reconciliation Statement.
5.3 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. Arun Rathi be Reprimanded under Section 21B (3)(a) of the Chartered Accountants Act 1949.
Sd/-
(CA. RANJEET KUMAR AGARWAL)
PRESIDING OFFICER
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(MRS. RANI S. NAIR, IRS RETD)
GOVERNMENT NOMINEE
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(SHRI ARUN KUMAR, IAS RETD.)
GOVERNMENT NOMINEE
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(CA. SANJAY KUMAR AGARWAL)
MEMBER
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(CA. COTHA S SRINIVAS)
MEMBER
