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MCA Penalizes CA Firm for Not Reporting Violations in Audit
09/07/2024
The Ministry of Corporate Affairs has penalized the auditor i.e CA Firm of PPS Export and Import Private Limited for not reporting company violations in its Statutory Audit Report. The said MCA penalty was imposed by the Office of the Ministry of Corporate Affairs (MCA) thorugh Registrar of Companies, ROC Bihar, under the provisions of Section 143 of the Companies Act, 2013. This case revolves around several instances where the above mentioned company’s financial statements didn’t comply with some mandatory disclosure requirements as specified in the Companies Act, 2013, and the auditor has failed to report these discrepancies in its Audit Report.
Key Violations and Auditor’s Responses :
1.Audit Firm Failed to Disclose or Report Related Party Information (AS-18):
The company’s financial statements for the year ending 31.03.2020 did not disclose the names and nature of relationships with related parties, as mandated by Accounting Standard-18 (AS-18) and Section 129 of the Companies Act, 2013. The auditor failed to report this omission. Although the auditor claimed that disclosures were made in a separate sheet, no such evidence was found in the records reviewed by the MCA.
2. Misclassification of Financial Items:
- The company has showed unsecured loans as short-term borrowings but failed to categorize these above mentioned unsecured loans as required by Schedule III of the Companies Act, 2013.
- Advances to the business named Unicon Global Adventure amounting to Rs. 5 lakhs were recorded without proper classification or sub-classification under Schedule III of the Companies Act, 2013. The auditor failed to highlight these misclassification, stating that the advances was correctly reported as per their knowledge and representation made by management, which there was no supported documents related to it.
3.Incorrect Reporting of Fixed Assets:
The company listed an amount of Rs. 5,90,000 under “Other Fixed Assets,” instead of “Capital Work in Progress,” as required by Item No. I of Schedule III. The auditor has reported this in their audit report but failed to make the necessary corrections, leading to a violation of Section 129 of the Company Act, 2013.
4.Non-Disclosure of Long-Term Loans and Advances:
Long-term loans and advances totaling Rs. 1,75,000/- were incorrectly classified, with no further sub-classification as Secured/Unsecured Loans, breaching the requirements of Section 129 of the Company Act, 2013. The auditor’s justification did not align with the documents available on the portal of MCA.
Legal Consequences on Audit Firm
Due to such non-compliances, the Ministry of Corporate Affairs concluded that the auditor of the Company, Mr. Amresh Kumar bearing Membership No. 429477, violated Sections 143(3)(d) and 143(3)(e) of the Companies Act, 2013. As per the provisions of Section 450 of the Companies Act, 2013, the auditor is liable for a penalty of Rs. 5,000 for the FY 2019-2020. The decision takes into account the company’s classification as a small company, which allows for reduced penalties under Section 446B of the Company Act, 2013.
Order and Next Steps
The said penalty must be paid within the period of 90 days via the MCA online payment portal. In case of Failure to comply with the payment terms, it will result in further legal actions on the Auditor, including imprisonment or some additional fines. The auditor also has the option to go for appeal against this decision within 60 days by submitting Form ADJ to the Regional Director, Ministry of Corporate Affairs, MCA Kolkata.
Reference : Patna RoC Order No: ROC/PAT/Sec. 143/37744/ 808 Date: 02.09.2024
It is very important for businesses as well as chartered accountants or firms of Chartered Accountant to be very diligent in preparing and reporting. To get more details about the subject mentioned above, you can contact us at +91 76201 44726 or email us at anam_ca@yahoo.com. Our firm, Anam Shaikh & Associates, an audit firm in Mumbai, is a team of professionals and experts who care about all your compliances. We are an expert CA Firm in Mumbai for GST Return Filling in Mumbai, Income Return Filling in Mumbai Audit & Assurance Services, and accounting services in Mumbai.
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