Mr. Aditya, a Chartered Accountant was the auditor of 'DRAW Limited'. During the financial year 2023-24, the investment appeared in the Balance…

As per Part I of Second Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he, certifies or submits in his name or in the name of his firm, a report of an examination of financial statements unless the examination of such statements and the related records has been made by him or by a partner or an employee in his firm or by another chartered accountant in practice, under Clause (2) ; does not exercise due diligence, or is grossly negligent in the conduct of his professional duties, under Clause (7) ; or 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, under Clause (8) . The primary duty of physical verification and valuation of investments is of the management. However, the auditor's duty is also to verify the physical existence and valuation of investments placed, at least on the last day of the accounting year. The auditor should verify the documentary evidence for the cost/value and physical existence of the investments at the end of the year. He should not blindly rely upon the management's representation. In the instant case, the investment of 23lakh appeared in the Balance Sheet of the company and was the same amount as in the last year. Later, it was found that the company's investments were only - 76,000, but the value of investments was inflated for the purpose of obtaining higher amount of bank loan. Such non-verification happened for two years. It also appears that auditors failed to confirm the value of investments from any proper source. In case auditor has simply relied on the management's representation, the auditor has failed to perform his duty. Thus, in view of above, CA Aditya will be held liable for professional misconduct under Clauses (2) , (7) and (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.