Now when Chartered Accountants are also landing in legal troubles specially under PMLA, how should you save yourself?
Now when Chartered Accountants are also landing in legal troubles specially under PMLA, how should you save y…
PMLA
A recent case saw the arrest of a statutory auditor linked to a major corporate fraud case under the Prevention of Money Laundering Act (PMLA). The CA is said to have colluded with his client to misrepresent finance expenses as advertising costs, leading to increased loans! Here we'll delve into this case, helping you understand the auditor's mistakes and guiding you on how to navigate such complex situations. Understanding this case can help you avoid similar pitfalls in your professional career.
Introduction and Case Synopsis:
The former statutory auditor and directors of Deccan Chronicle Holdings Limited (DCHL) were arrested due to their involvement in a corporate fraud scheme.
Notably, the auditor colluded with company directors to fabricate accounts, thereby misleading bankers to secure additional loans.
The management understated finance expenses, overstated advertising revenue, hid loan liabilities for creating a misleading picture of the company's financial health and profitability thus induced bankers to extend more credit, give new loans. They used these new loan funds for paying previous loans, diverting funds to subsidiaries/associates, declaring dividends.
His connivance with management resulted in his arrest under the Prevention of Money Laundering Act (PMLA) because by aiding in the misrepresentation of financial facts, the auditor was complicit in money laundering,
The PMLA is an act aimed at preventing money laundering and associated illegal activities. In this case, leading to his arrest under the PMLA.
Was the statutory auditor really doing this or he is just made a scape goat?
You can research on it but I can definitely help you in handling such professional complexities and thus saving yourself from such perilous professional outcomes, Plus I can make you aware of the PMLA's provisions that can help you stay clear of such violations.
HERE'S HOW YOU CAN SAVE YOURSELF:
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Now here's how you can save yourself...
Remember, What's your role?
As an auditor your role is Ensuring Financial Transparency. Your primary role is to provide an unbiased examination of your client's financial statements. Any manipulation or misrepresentation of financial data violates the fundamental principles of auditing and professional ethics. How will you find out that accounts are cooked?
You are an expert, fully aware of all technical tools and tactics you should use to sniff, evaluate, corroborate, analyse and decide whether the accounts are cooked! and then decide what you should do to successfully convince your work-consumers that you did your job with professional prudence.
What best practices should you do when you encounter with similar circumstances?
Should you, as a statutory auditor, find yourself in a similar situation, it is essential to: 4.1. Uphold the Code of Ethics: Abide by the code of ethics outlined by the Institute of Chartered Accountants. You should not participate in any activities that misrepresent or manipulate financial statements. 4.2. Report Misconduct: In cases where the management is complicit in fraudulent activities, it's necessary to escalate the issue to the relevant regulatory bodies. 4.3. Consult Legal Advice: Considering the severe legal consequences at stake, it's wise to seek legal counsel in such situations to safeguard your professional interests.
But the question is CAN YOU DO ALL THAT WHEN CLIENT IS BIG? YES, you can do it WHEN YOU'RE BIG TOO.
