In this guide · 7 sections
- A statutory auditor was held guilty under Clauses (5), (6), (7) and (8) of Part I of the Second Schedule and given a reprimand, a ₹5,00,000 fine and removal from the Register for one year (order dated 5 February 2026).
- Money collected from the public was recorded as "unsecured loans" and similar heads instead of deposits, far above the limit the deposit rules allowed, and the auditor's CARO reports did not report them as deposits.
- Funds were lent interest-free to group companies, and the related party disclosures required by AS 18 were inadequate.
- He could not produce his working papers, saying they "remained with the firm" he had left. The Committee held that he "has not demonstrated any effort to obtain or secure copies".
- The lesson for every auditor: look at what a receipt is, not what it is called — and keep access to the file you signed, wherever you go.
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Start freeMost disciplinary orders turn on one clause. This one used four. The auditor of two companies was found to have missed what the money in the balance sheet really was, to have under-reported related party lending, and — years later — to have no working papers to show for any of it. The result was the heaviest punishment in this series so far.
This is the fifth article in Real orders, real lessons. We describe what the order says without naming the member or the companies. Earlier: the "junior staff" defence, the ₹3,000 audit, the four documents that helped save a CA and "trivial and innocuous".
The case in brief
| Item | From the order |
|---|---|
| Forum | ICAI Disciplinary Committee (Bench I, 2025-26), under section 21B of the Chartered Accountants Act, 1949 |
| Engagement | Statutory audit of two companies in a group, over several years, under the Companies Act, 1956 |
| Who complained | A government department |
| Charges | Clauses (5), (6), (7) and (8) of Part I of the Second Schedule |
| Findings | Guilty on all four allegations (findings dated 22 December 2025) |
| Punishment | Reprimand, a fine of ₹5,00,000 payable within 60 days, and removal of name from the Register of Members for one year (order dated 5 February 2026). ₹5,00,000 is the highest fine section 21B(3) allows as currently in force; the 2022 amendment that raises it has not been brought into force |
The four clauses
| Clause | A chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he — |
|---|---|
| (5) | "fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity" |
| (6) | "fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity" |
| (7) | "does not exercise due diligence, or is grossly negligent in the conduct of his professional duties" |
| (8) | "fails to obtain sufficient information which is necessary for expression of an opinion, or its exceptions are sufficiently material to negate the expression of an opinion" |
What the Committee found
| Allegation | What the order records | Held |
|---|---|---|
| 1. Public deposits not disclosed | The companies were collecting money from the public under various schemes, recorded as "Unsecured Loans" in one company and under a refundable fees head in the other, far above the limit in the then Companies (Acceptance of Deposits) Rules, 1975 (25% of paid-up capital and free reserves). Fixed assets and capital work-in-progress did not grow to match. The complaint said his reports described the companies as not accepting public money, and his CARO reports did not report the amounts as deposits; in a later statement he admitted that one company was taking large deposits | Guilty: Clauses (5), (6), (7), (8) |
| 2. Advances recorded as unsecured loans | Receipts were neither shown as advances from customers nor routed through the profit and loss account; they were returned after a set period with predetermined interest, showing no intention to adjust them against any product or service. The statements did not give a true and fair view | Guilty: Clauses (5), (6), (7), (8) |
| 3. Loans to group companies | Interest-free loans to group companies under the same management, beyond the statutory limit for inter-corporate loans (whether the required special resolutions were passed could not be verified), with related party disclosures inadequate under AS 18. The auditor admitted the omissions in his statement | Guilty: Clauses (5), (6), (7), (8) |
| 4. Working papers | Asked for the audit procedures and working papers, he said they remained with the firm he had since left, and did not produce them | Guilty: Clauses (7), (8) |
The member did not appear before the Committee; at his request, it decided the matter on the record and his written submissions.
"They remained with the firm"
The Committee noted that SA 230 and SQC 1 place the responsibility for retaining working papers on the firm. That did not help. In its words, "the Respondent has not demonstrated any effort to obtain or secure copies of the working papers from his erstwhile firm", and so he "failed to obtain sufficient information which is necessary for expression of an opinion".
The point for anyone who signs: the file belongs to the firm, but the signature is yours. If you move firms, retire from a partnership or the firm dissolves, make sure you can still get to the files behind the reports you signed.
Four lessons for any audit
1. Look at what a receipt is, not what it is called
The money sat under heads that did not say "deposit". The Committee looked at the substance: money taken from the public, returned with predetermined interest, and not adjusted against any product or service. Ask what each large receipt really is, and test it against the deposit rules (today, Chapter V of the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014).
2. Watch the balance sheet for growth that does not fit
Liabilities grew year after year while fixed assets and capital work-in-progress did not grow to match. When "loans" or "advances" grow sharply but the assets they are supposed to fund do not, ask where the money went.
3. Follow the money to related parties
Funds went out interest-free to group companies. Check loans to related parties against the statutory limits and approvals (today, section 186 of the Companies Act, 2013), and make the related party disclosure complete. See the related party disclosures checklist.
4. Keep access to your file — wherever you go
The firm keeps the working papers, but the member answers for the report. Keep your own copy of key working papers, or a written arrangement with the firm, for every report you sign. See audit working papers under SA 230.
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Start freeFrequently asked questions
What was the punishment in this case?
A reprimand, a fine of ₹5,00,000 payable within 60 days, and removal of the member's name from the Register of Members for one year, under section 21B(3) of the Chartered Accountants Act, 1949 (order dated 5 February 2026). ₹5,00,000 is the highest fine that section allows as currently in force.
Which clauses was the auditor held guilty under?
Clauses (5), (6), (7) and (8) of Part I of the Second Schedule: failing to disclose a material fact, failing to report a material misstatement, not exercising due diligence, and failing to obtain sufficient information for an opinion.
If working papers stay with the firm, is the partner who left still responsible?
In this order, yes. The Committee accepted that SA 230 and SQC 1 place retention on the firm, but held the member responsible because he had not demonstrated any effort to obtain or secure copies from his former firm.
Can amounts called loans or advances be deposits?
Yes. Here money collected from the public was recorded as unsecured loans and similar heads, but the Committee looked at the substance: it was returned after a set period with predetermined interest and not adjusted against any product or service, and his CARO reports did not report the amounts as deposits.
Did the auditor defend himself?
He did not appear before the Committee; at his request, it decided the matter on the record and his written submissions.
Sources
- ICAI Disciplinary Committee, Bench I — orders for the Council year 2025-26 (findings 22.12.2025, order 05.02.2026)
- Chartered Accountants Act, 1949 — Second Schedule, Part I, Clauses (5) to (8)
- ICAI — SA 230 Audit Documentation
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Version history: 20 Oct 2026 — first published. 20 Oct 2026 — written from the ICAI Disciplinary Committee findings (22 Dec 2025) and order (5 Feb 2026) (Bench I, 2025-26). Fifth in the series "Real orders, real lessons".
