Concurrent audit negligence can amount to professional misconduct even without mala fide intent or knowledge of concealed fraud.

In a concurrent audit, absence of knowledge of fraudulent concealment and no proof of mala fide intent defeated charges of professional misconduct based on non-disclosure under clauses (5) and (6) of Part I of the Second Schedule to the Chartered Accountants Act, 1949, and those findings were declined. However, the auditor was still found negligent because the audit required greater care and caution, particularly for newly opened and unusual transactions, and routine cross-checking should have revealed the entries. That failure constituted professional misconduct under clause (7), and severe reprimand was imposed under Section 21(6)(c) of the Chartered Accountants Act, 1949.

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Issues: (i) Whether the respondent was guilty of professional misconduct under clauses (5) and (6) of Part I of the Second Schedule to the Chartered Accountants Act, 1949; (ii) Whether the respondent was guilty of professional misconduct under clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 and, if so, what penalty should follow.

Issue (i): Whether the respondent was guilty of professional misconduct under clauses (5) and (6) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Analysis: The scope of a concurrent auditor's duty was examined in the context of fraud that had continued over a period and had also escaped the attention of other auditors and bank officers. On the material placed, the undisclosed facts and misstatements arose from fraudulent conduct by bank officials and were not shown to be within the respondent's knowledge. No mala fide intention was established.

Conclusion: The respondent was not guilty under clauses (5) and (6) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Issue (ii): Whether the respondent was guilty of professional misconduct under clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 and, if so, what penalty should follow.

Analysis: The Court accepted that the fraud was difficult to detect, but held that the terms of the concurrent audit required greater care and caution, especially in respect of newly opened and unusual transactions. The respondent's failure to detect transactional entries that ought to have been disclosed on routine cross-checking amounted to negligence in the performance of professional duties.

Conclusion: The respondent was guilty under clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949, and severe reprimand was imposed under Section 21(6)(c) of the Chartered Accountants Act, 1949.

Final Conclusion: The reference was partly accepted: the findings under clauses (5) and (6) were declined, but professional misconduct for gross negligence was affirmed and disciplinary penalty was imposed.

Ratio Decidendi: In a concurrent audit, absence of knowledge or mala fide intent may defeat charges based on non-disclosure or non-reporting of material facts, but failure to exercise due care and caution in carrying out audit duties may constitute gross negligence amounting to professional misconduct.

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