KARACHI: The Institute of Chartered Accountants of Pakistan (ICAP) has penalised five chartered accountant firms for not auditing the accounts as per regulations of Chartered Accountant Ordinance 1961, Companies Ordinance 1984 and International Accounting Standards (IAS).
Sources in ICAP said that the Council of the Institute has recommended that out of these five chartered accountant companies, the membership of 2 companies be suspended for periods of 3 and 2 years.
The sources said the Council has approved the recommendations of the investigation committee of the ICAP and directed the Secretariat of the ICAP to file two separate references before Sindh High Court with a recommendation that the membership of Abdul Rahim Salim Bhai, FCA, partner of Rahim Iqbal and Company, Chartered Accountant, be suspended for 3 years and membership of Mohammad Sarfraz, FCA, (sole proprietor of A Aziz Chaudhry and Company) be suspended for a period of 2 years.
The committee has reported that Abdul Rahim Salim Bhai had failed to report the misappropriation of Rs134.7 million in the accounts of a company.
The name of the company for which the audit was carried out is not disclosed for the sake of both transparency and secrecy as per regulations of the ICAP.
The committee has reported to the Council that the auditor was negligent in not carrying out basic audit steps to verify the existence of assets.
Had the auditor taken reasonable care to apply procedures, such as direct confirmation, the multiple fraud of the management (of the company) resulting in misappropriation of Rs134.7 million would have been detected.
The Council found Abdul Rahim guilty of gross negligence in the performance of his professional duties under clause 7 of part 1 of Schedule 11 to the Chartered Accountant Ordinance, 1961.
In the 2nd case, the Council approved the investigation committee’s report with regard to Mohammad Sarfaraz, FCA of A Aziz Chaudhry and Company, Chartered Accountants, which found gross negligence in reporting a case of a company in which the dividend was paid out of capital.
The committee found that the under investigation chartered accountant company neglected the disclosure requirements of IAS and the 4th Schedule of the Companies Ordinance, 1984.
The council decided to send a reference to the High Court for appropriate action, with the recommendation of suspending membership for a period of 2 years. The council further reprimands Mohammad Sarfaraz.
In the 3rd case the Council also decided to reprimand third auditor, Shaikh Jalaluddin, FCA, partner of Sandhu and Company, Chartered Accounts, because he failed to report 4 vital disclosures in the accounts of a company, which he audited.
The four irregularities, which were caused by the auditor, as per report of the investigation committee of the Institute are:
The cash flow statement was not included in the financial statement as required under para 7 of IAS-1. Mark-up on short-term borrowings was not charged to the accrual assumption as per para 25 of IAS-1. Disclosure in respect of IAS-32, which is regarding financial instruments had not been made. Disclosure that financial statements complied with international accounting standards as required under Para 11 of IAS-1 had not been made. In the 4th case the council decided to reprimand Mohammad Shafiq-ur-Rafique because he did five irregularities in conducting the audit of a company, which includes Balance Sheet and Income and Expenditure Account for the year ended June 30, 2002 were incorrectly issued on the letterheads of Shafiq and Company, Chartered Accountants. In the 5th case, the Council decided to reprimand Azhar Iqbal because he accepted the audit of the company without first ascertaining whether the requirements of Section 253 of the Companies Ordinance, 1984 had been complied with.