CA Found GUILTY of professional misconduct falling not obtaining debtors confirmation

ORDER UNDER SECTION 21B(3) OF THE CHARTERED ACCOUNTANTS ACT, 1949 READ WITH RULE 19(1) OF THE CHARTERED ACCOUNTANTS (PROCEDURE OF INVESTIGATION OF PROFESSIONAL AND OTHER MISCONDUCT AND CONDUCT OF CASES) RULES, 2007.

[PR/72A/13-DD/264/14-DC/564/2017]

In the matter of:

Smt. Harshita Attaluri, I.P.S.,

The Head of Branch, Central Bureau of Investigation, Bank Securities and Frauds Cell, New Hind House, 2nd floor, Narottam Morarjee Marg, Ballard Pier MUMBAI – 400 001

Complainant

-Vs-

CA. Nitte Sudhir Shetty (M.No.035083) Of Ms. N.S Shetty & Co. (FRN No. 110101W)

Arjun plot no. 6A, Kalyan Gram Society, VP Road Andheri (West)

MUMBAI-224001

Respondent

MEMBERS PRESENT (Physically):

  1. CA. (Dr.) Debashis Mitra, Presiding Officer
  2. Mrs. Rani Nair, I.R.S. (Retd.), Government Nominee
  3. Shri Arun Kumar, I.A.S. (Retd.), Government Nominee
  4. CA. Rajendra Kumar P, Member
  5. CA. Cotha S Srinivas, Member DATE OF MEETING : 08.04.2022 (Through Physical/ Video Conferencing Mode)

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 dated 11.02.2022, the Disciplinary Committee was inter-alia of the opinion that CA. Nitte Sudhir Shetty (M.No.035083), (hereinafter referred to as the Respondent”) was GUILTY of professional misconduct falling within the meaning of Item (7) of Part I of the Second Scheduleto the Chartered Accountant Act, 1949.

2. The Committee noted that the Respondent was present through video conferencing mode. He submitted that he had taken requisite confirmations regarding debtors. He further submitted that his name was not included in charge sheet filed by CBI.

CA. Nitte Sudhir Shetty (M.No.035083) Mumbai

3. The Committee noted that during the audit period of the Respondent i.e. Financial 2004- 05 and 2005-06, there was huge variation in the figures of Sundry Debtors disclosed in Balance Sheet when compared to actual debtors. As per Balance Sheet Sundry Debtors were Rs. 1110.85 Lacs (Financial Year 2004-05) and Rs. 2305.45 lakhs (Financial Year 2005-06) whereas actual debtors for these periods were respectively Rs. 597.75 lakhs and Rs. 811.43 lakhs only.

4. On the question of sizable increase in debtors in the year 2005-06, the Respondent submitted that since his client M/s Prominent Tours and Travels Pvt. Ltd. was in the business of ticketing, arranging tours, the transactions were voluminous in nature and during the period of audit in question, it was not an established practice to take confirmation from each of debtors. The Committee also wanted to know whether CBI, i.e. the Complainant, have name the Respondent as one of the accused in charge-sheet filed by them to which the Respondent said that he was not an accused and no charge-sheet filed by CBI contained his name as one of the accused party.

5. The Committee is of the view that such large increase in debtors should have raised reasonable suspicion while auditing books of accounts by the Respondent. The Respondent relied upon books of accounts, did not proceed to ascertain the facts, nor did he take any steps to obtain direct confirmation from the debtors and thus facilitating the management in obtaining facilities from the Financial Institutions.

6. Therefore, keeping in view the facts and circumstances of the case, material on record and submissions of the Respondent before it, the Committee ordered that the name of that name of the Respondent CA. Nitte Sudhir Shetty (M.No.035083), Mumbaibe removed from Register of members for a period of six months along with fine of Rs 1,00,000/- (Rupees One Lakh).

Finding of the committee:

The Committee noted that the Respondent in his submissions seems to have taken the defence of Rule 12 which empowers the Respondent to express his difficulties in explaining his acts which happened more than seven years ago. The Committee noted that the complaint based on investigation started on 26th November 2010. The Committee noted that the Complainant had brought on record statement of the Respondent taken on 2nd September 2011. Thus, the Respondent was aware of the same and hence cannot take shed of Rule 12.

the Respondent submitted that the Respondent had sufficient appropriate audit evidence based upon which he was satisfied with the verification of the debtors.

The Committee noted following chart which illustrates the inflation of the figures in Balance Sheets of PTTPL during the audit period of the Respondent.

Figure in lakhs

On perusal of facts it is revealed that there were variations in above figures which Respondent(s) failed to point out.

The Committee further observed that as per Para 3 of AAS 5 (Audit Evidence), the auditor should evaluate whether he has obtained sufficient appropriate audit
evidence before he draws his conclusions therefrom. The audit evidence should, in total, enable the auditor to form an opinion on the financial information. ln
forming such an opinion, the auditor may obtain audit evidence on a selective basis by way of judgmental or statistical ·sampling procedures. The Committee noted that no such procedure had been followed by the Respondent rather he merely relied on the client.

Iii the opinion of the Committee, while AAS 5 (Audit Evidence) lays down several methods of inquiry and confirmations. In the opinion of the Committee, the Respondent has not been able to bring out any reasoning/justification as to why_ no confirmations have been obtained in respect of Debtors.

In addition to this, the Committee also noted that as per AAS 5, an external
confirmation represents audit evidences secured from the third party is more reliable than internal evidence. External confirmation needs to be secured to
reduce the audit risk to an acceptable level. Notingly, no such external confirmation of balances had been secured by the Company and the Respondent as an auditor in the case of debtors.


The Committee on considering the arguments of the Respondent’s side, formed the opinion that it was the responsibility of the auditor to design and perform audit
procedures in such a way to enable to obtain sufficient audit evidence so that a reasonable opinion could have been formed for forming an audit opinion. These
evidences were to be obtained by substantive procedures as per AAS 5 (Audit Evidence). These substantive procedures among others covered external
confirmations. The Committee was convinced with the fact that the Respondent failed to collect evidences obtained from independent sources to reduce the audit risk.

Therefore, the Committee concluded that the Respondent did not exercise due diligence in the audit of the auditee company and did not plan the audit in such a way to apply additional substantive audit procedures where internal control of the auditee company in the case of a large number of party balances were not confirmed by the auditee company and hence hold him guilty of professional misconduct._

CONCLUSION

In view of the above findings stated, the Committee in its considered opinion hold the Respondent GUILTY of Professional Misconduct falling within the meaning
. of Item (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

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