Suraj Exports Limited (SEL), a multi-unit manufacturer registered across multiple states, presents a high-stake study involving interconnected…

Suraj Exports Limited (SEL), a multi-unit manufacturer registered across multiple states, presents a high-stake study involving interconnected professional standards, corporate restructuring, and governance compliance. The Company decided to avail the services of CA. Grewal who is an expert, which the company seems can fulfil its need. CA. Grewal, the practitioner, must manage dual non-assurance engagements a Compilation Engagement and a concurrent Agreed-Upon Procedures engagement for the company. The conflict arises because the Agreed-Upon Procedures (AUP)'s factual findings regarding current asset ownership directly indicate a material misstatement in the compiled financial information, necessitating a decision on mandatory withdrawal under SRS when management refuses to correct the figures. On the regulatory front SEL implemented a corporate demerger of one of its manufacturing units into Beta Manufacturing Limited, which demands the correct statutory apportionment and transfer of the unutilized GST Input Tax Credit (ITC) held in its electronic credit ledger. Leveraging its significant net worth and turnover, SEL's Board is scheduled to approve multiple related party transactions (RPTs), including a services agreement and property acquisition. This requires an assessment of the required level of approval viz. board vs. shareholders' resolution, considering the aggregate transaction values, and correctly determining the valid quorum in the presence of interested directors. Suraj Exports Limited (SEL) engaged CA. Grewal for two distinct but interconnected related services engagements. The first was a Compilation Engagement, accepted after agreeing on engagement terms, to prepare draft quarterly financial statements for the Quarter ended 31st December 2025, exclusively for SEI's internal management reporting. The second engagement arose when SEL's primary lender subsequently required CA. Grewal to perform Agreed-Upon Procedures on SEL's current assets. The Agreed-Upon Procedures scope was narrowly defined, focusing solely on validating the existence and ownership documentation for a large consignment of specialized finished goods valued at 80 crores, utilizing procedures like inspection and obtaining confirmations. CA. Grewal ensured the Agreed-Upon Procedures report was appropriately restricted to the parties who agreed to the procedures, as required by standard. During the compilation process, CA. Grewal was applying accounting expertise to present the information. However, the subsequent agreed upon procedures revealed, through factual findings, that SEL could not produce sufficient supporting documentation to confirm ownership of 15 crores of these goods, suggesting the compiled financial information was materially misstated regarding asset valuation. Although CA. Grewal proposed appropriate amendments as mandated, SEL's management insisted upon him to proceed with issuing the compilation report based on the original, flawed trial balance figures. Management asserted that since a compilation is a non-assurance engagement, the scope of the relevant standard did not require the practitioner to verify the accuracy or completeness of the information provided, and they subsequently declined to acknowledge responsibility for the final version of the compiled financial information that included the necessary adjustments. This conflict had put CA. Grewal in a mandated withdrawal position, despite the original purpose of the compilation being internal. Suraj Exports Limited is registered in both the states of Maharashtra and Gujarat with the same permanent account number and operates a multi-unit manufacturing business. The company decided to demerge one of its manufacturing unit located in Pune, Maharashtra, into a new, separately registered entity, Beta Manufacturing Limited. The restructuring plan was implemented on 1st October 2024, and explicitly provided for the transfer of all associated GST liabilities from Suraj Exports Limited (SEL) to Beta Manufacturing Limited. Financial Details of Maharashtra Units as on 30th September 2024 is as under: Particulars Value/Balance Total value of assets held by Suraj Exports Limited. (SEL) (Maharashtra) 800 Lakhs Value of assets transferred to Beta Manufacturing Limited (Maharashtra) 200 Lakhs Unutilized ITC Balance in Electronic Credit Ledger of Suraj Exports Limited (SEL) (Maharashtra) CGST:15 Lakh, SGST:15 Lakhs, IGST:30 Lakhs Disposal of Assets by Suraj Exports Limited (SEL) (Post-Demerger): On 10th December 2024, Suraj Exports Limited (SEL) sold a specialized packaging machine (Machine X) which it had retained for its remaining business operations (not part of the demerged unit). Machine X was originally purchased on 25th January 2023.Original ITC availed on Machine X:2,70,000 (IGST Value @ 18% rate).Transaction value of sale (exclusive of GST):8,00,000. The following are some of the key figures taken from the latest audited financial statements of Suraj Exports Limited (SEL): Financial Metric Amount Paid-up Share Capital (PSC) 50 Crores Free Reserves (FR) 50 Crores Net Worth (NW) (PSC + FR) 100 Crores Turnover (TO) 500 Crores The Board of Directors of the Company consists of five Directors (D1 to D5). The Board is scheduled to meet to approve three proposed transactions for the current financial year: Transaction A (Property Acquisition): SEL proposes to buy property from SUS Limited for 12 Crores. D2 holds 3% of the total voting power in SUS Limited.Transaction B (Services Agreement): SEL proposes to appoint MOH Private Limited as its IT services agent for 45 Crores. D1 is a director in MOH Private Limited, and D3's relative is a member there. The transaction is not considered to be in the ordinary course of business or on an arm's length basis.Transaction C (Supply of Goods): SEL. already purchased general office consumables (goods) aggregating - 4,90,000 from MOH Private Limited in the current financial year. Suraj Exports Limited (SEL) is also proposing to enter into a 5-year lease agreement with its associate Moonshine Limited (related party) valued at 40 crores over the entire lease duration.