Rockey Joseph Gonsalves Vs CA. Abhijit Prabhakar Sanzgiri (ICAI Disciplinary Committee)
Non-Cash Revaluation Included in Cash Flow Statement: ICAI Reprimands Bank Auditor
Summary: The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI), Bench-II, passed an order dated 3 October 2026 reprimanding CA. Abhijit Prabhakar Sanzgiri (Membership No. 043230), partner of M/s A. P. Sanzgiri & Co., Mumbai, for professional misconduct arising from the statutory audit of The Bassein Catholic Co-operative Bank Limited for FY 2015-16. The proceedings originated from a complaint filed by Shri Rockey Joseph Gonsalves, Shri Jojepa D’Silva, Shri Raymond Machado and others, who described themselves as shareholders or members of the Bank. The punishment followed the Committee’s findings pronounced on 29 August 2026, holding the respondent guilty under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. The principal allegation concerned the inclusion of a non-cash fixed-asset revaluation adjustment within investing activities in the Bank’s Cash Flow Statement, contrary to Accounting Standard (AS) 3, Cash Flow Statements. The Committee held that an auditor must ensure compliance with the applicable Accounting Standards when a cash flow statement forms part of the audited financial statements, regardless of whether its preparation was independently mandated by statute. The punishment was confined to a reprimand under Section 21B(3), with no monetary fine or removal from membership.
The complainants had examined the Bank’s Annual Report for FY 2015-16 and raised concerns regarding certain financial statement disclosures and accounting treatments. The relevant Cash Flow Statement reported net cash generated from operating activities of ₹50.67 crore, while showing an increase in fixed assets of ₹72.89 crore under investing activities. The complainants questioned how an apparently substantial investment in fixed assets had been financed when the cash generated from operations was lower than the reported increase. The respondent explained that ₹57.77 crore of the increase in fixed assets represented revaluation of the Bank’s owned branch premises, classified under land and buildings in the Balance Sheet. The central accounting issue was therefore whether an increase arising from revaluation, rather than an actual payment for acquiring assets, could properly be incorporated into investing cash flows. Although the original complaint referred more broadly to alleged irregularities in the Bank’s financial statements, the present disciplinary proceedings concerned the respondent’s audit for FY 2015-16 and specifically the treatment of the revaluation adjustment in the Cash Flow Statement.
The respondent denied that the financial statements were misleading or fraudulent. He submitted that the revaluation of fixed assets had been disclosed elsewhere in the financial statements and that the relevant adjustment was included in the Cash Flow Statement by management through an inadvertent presentation or classification error. According to him, management had treated the change in fixed-asset values, excluding depreciation, as a figure requiring disclosure under investing activities. He argued that the error was isolated and did not affect the Profit and Loss Account, Balance Sheet or overall audit opinion. He further contended that the treatment did not result in financial loss to the Bank, adversely affect stakeholder decisions or cause any economic prejudice. The respondent maintained that an unintended classification issue, particularly one already explained elsewhere in the financial statements, should not automatically be characterised as gross negligence or professional misconduct.
The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) has reprimanded CA. Abhijit Prabhakar Sanzgiri for failure to exercise due diligence while auditing a bank’s cash flow statement containing a non-cash revaluation adjustment under investing activities.
The Committee held that once a cash flow statement forms part of audited financial statements, the auditor must ensure compliance with AS 3—Cash Flow Statements, even where preparation of that statement is not statutorily mandated.
The order dated October 3, 2026, follows findings dated August 29, 2026, in the complaint filed by Shri Rockey Joseph Gonsalves and others.
Background of the Case
The respondent, a partner of M/s A. P. Sanzgiri & Co., audited the financial statements of The Bassein Catholic Co-operative Bank Limited for FY 2015-16.
The complainants, who described themselves as shareholders or members of the bank, questioned certain disclosures and accounting treatments in its annual report.
The charge considered in these proceedings concerned the cash flow statement. It reported net cash generated from operating activities of ₹50.67 crore, while reflecting an increase in fixed assets of ₹72.89 crore under investing activities.
The complainants questioned how the investment had been financed.
Revaluation Included Within Investing Activities
The respondent explained that ₹57.77 crore of the increase in fixed assets arose from revaluation of owned branch premises, classified under land and buildings.
The issue therefore concerned inclusion of a non-cash increase in asset value within a statement intended to report actual cash movements.
The Committee found that the respondent was aware that the revaluation adjustment had been reflected under investing activities. It examined whether this treatment complied with AS 3 and whether the audit opinion appropriately addressed the deviation.
Respondent’s Defence: Isolated Presentation Error
The respondent characterised the treatment as an inadvertent presentation or classification error by management.
He submitted that revaluation was disclosed elsewhere in the financial statements and that the error did not affect the Profit and Loss Account, Balance Sheet or audit opinion as a whole.
He also argued that the treatment caused no financial loss, stakeholder prejudice or adverse economic consequence.
According to the respondent, preparation of a cash flow statement was not mandatory under the applicable co-operative banking framework. He further relied on the absence of an adverse observation by RBI during its inspection and sought leniency for an isolated lapse.
AS 3 Requires Exclusion of Non-Cash Transactions
The Committee referred to paragraphs 40 and 41 of AS 3.
These provisions require investing and financing transactions that do not involve cash or cash equivalents to be excluded from the cash flow statement. Relevant information concerning such transactions should instead be disclosed elsewhere in the financial statements.
The Committee observed that revaluation changes asset values and the revaluation reserve but does not involve an exchange of cash.
Consequently, its inclusion under investing activities was inconsistent with the objective and requirements of AS 3. Disclosure of the revaluation elsewhere did not make its inclusion in the cash flow statement compliant.
Auditor Had Expressly Opined on Cash Flows
The Committee examined the respondent’s audit report and noted that his opinion expressly covered the cash flow statement for the year ended March 31, 2016.
The report also stated that the Balance Sheet, Profit and Loss Account and Cash Flow Statement complied with applicable Accounting Standards.
The Committee therefore rejected the argument based on absence of a statutory requirement to prepare the statement. Once prepared, included in the financial statements and covered by the audit opinion, it had to comply with the applicable standard.
The respondent’s responsibility existed when the audit report was issued.
Absence of Financial Harm Did Not Excuse the Lapse
The Committee held that classification of a non-cash item as a cash flow was more than a minor presentation issue. It affected the correctness and reliability of the statement.
It observed that certifying such a statement as compliant could mislead users about actual cash movements. The absence of public harm or a regulatory penalty did not discharge the auditor’s professional responsibilities.
The Committee concluded that the respondent failed to exercise the due diligence and professional care expected of a statutory auditor.
Procedural Objections Rejected
The respondent also questioned the complaint’s maintainability because it did not properly identify the relevant disciplinary clauses.
The Committee held that non-mentioning or incorrect mentioning of a provision did not invalidate a complaint containing the factual allegations necessary for examination.
It also rejected the suggestion that the cash flow issue had first been introduced in the rejoinder, finding that it already formed part of the original complaint.
Finding and Punishment
The respondent was held guilty under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
After considering his representations and request for leniency, the Committee imposed a reprimand under Section 21B(3). No monetary fine or removal from membership was ordered.
