ICAI Disciplinary Committee Finds Concurrent Auditors Guilty for Failure to Detect LC Fraud
M/s. Sudan Kapoor & Associates was appointed as concurrent auditor for the Ghaziabad Business Unit of Jammu & Kashmir Bank for the period May 2014 to April 2015. Based on information received from the Bank alleging large-scale fraud in discounting of Letters of Credit (LCs), disciplinary proceedings were initiated against the firm and three Chartered Accountants who had declared themselves as members answerable.
During the proceedings, the Bank’s internal investigation report revealed that fake and irregular LCs aggregating to Rs. 73.61 crore were discounted at the branch, causing substantial financial loss.
Issue Before Committee: Whether the concurrent auditors failed to exercise due diligence and professional care by not reporting material irregularities and fraudulent LC discounting during the audit period.
Committee’s Order: The Disciplinary Committee held that merely stating “no record found” in audit reports did not amount to adequate audit reporting, particularly when high-value LC transactions were reflected in the bank’s books. The Committee observed that the auditors were expected to independently verify internal records, escalate non-production of documents, and report procedural violations involving LC discounting.
The Committee concluded that the auditors failed to report material facts, failed to detect and disclose misstatements, and did not exercise due diligence in the discharge of their professional duties. Therefore, CA Rajesh Sudan and CA Sachin Kumar Sharma were held guilty of professional misconduct under Clauses (5), (6), (7) and (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949. Proceedings against CA Chinky Tripathi were closed as she was not associated with the firm during the relevant audit period.
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