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2024 (5) TMI 279 - NATIONAL FINANCIAL REPORTING AUTHORITYProfessional misconduct by CA - Liability of the Engagement partner with audit firm - Acceptance of the Audit Engagement - Significant Matters Reported by the Previous Auditor - Evaluation of the Going Concern Assumption - Verification of Expected Credit Loss (ECL) on Financial Assets - Modification of the Audit Opinion on the Financial Statements - Use of the work of Management's Experts and Auditor's Expert - Engagement Quality Control Review (EQCR) - Compliance with SA 230 [SA 230, Audit Documentation] - penalty and sanctions - HELD THAT:- The Auditor has made a series of departures from the Standards and the Law, in conduct of the audit of Reliance Home Finance Limited for FY 2018-19. Based on the discussion, it is proved that the Audit Firm issued an audit opinion on the Financial Statements without adequate supporting evidence. Based on the discussion and analysis, it is concluded that the EP, EQCR Partner and the Audit Firm have committed Professional Misconduct as defined in the Act, as below: a) The Audit Firm Mis Dhiraj & Dheeraj and the EP CA Piyush Patni committed professional misconduct as defined by Section 132(4) of the Companies Act, 2013, read with Section 22 and Clause 5 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a CA is guilty of professional misconduct when he "fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity". This charge is proved as the Audit Firm and EP failed to disclose in their report the material non-compliances the Company. b) Mis Dhiraj & Dheeraj and CA Piyush Patni committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 6 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a CA is guilty of professional misconduct when he "fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity". This charge is proved as the Auditor failed to disclose in their report the material misstatements made by the Company. c) Mis Dhiraj & Dheeraj, CA Piyush Patni and the EQCR Partner CA Pawan Kumar Gupta committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 7 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 3 8 of 1949) as amended from time to time, which states that a CA is guilty of professional misconduct when he "does not exercise due diligence or is grossly negligent in the conduct of his professional duties". This charge is proved as the Auditor, conducted the audit of a Public Interest Entity in total disregard of their statutory duties, evidenced by multiple critical omissions and violations of the standards. The instances of failure to conduct the audit in accordance with the SAs and applicable regulations, and failure to report the material misstatements in the financial statements and non-compliances made by the Company. d) Mis Dhiraj & Dheeraj, CA Piyush Patni and CA Pawan Kumar Gupta committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 8 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a CA is guilty of professional misconduct when he "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". This charge is proved as the Auditor failed to conduct the audit in accordance with the SAs and applicable regulations as well as due to their total failure to report the material misstatements and non-compliances made by the Company in the financial statements. e) Mis Dhiraj & Dheeraj and CA Piyush Patni committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 9 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a CA is guilty of professional misconduct when he "fails to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances". This charge is proved since the Auditor failed to conduct the audit in accordance with the SAs but falsely reported in their audit report that the audit was conducted as per SAs. f) Mis Dhiraj & Dheeraj, CA Piyush Patni and CA Pawan Kumar Gupta committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 8 of Part I of the First Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a CA is guilty of professional misconduct when he "fails to communicate with outgoing auditor". This charge is proved since the Auditor failed to accept the audit in accordance with the law. Thus it is concluded that the charges of professional misconduct in the SCN are established based on the evidence in the Audit File, the audit reports on the standalone financial statements for the FY 2018-19 dated 13th August 2019 and the submissions made by the Auditor, and the Annual Report of Reliance Home Finance Limited for the FY 2018-19. Penalty and sanctions - HELD THAT:- Section 132 (4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed is evident from the fact that a minimum punishment is laid down by the law. Because professional misconduct has been proved and considering the nature of violations and principles of proportionality, in the exercise of powers under Section 132 (4) (c) of the Companies Act, 2013, it is ordered as follows: a. Imposition of a monetary penalty of Rupees One crore on the Audit Firm Mis Dhiraj & Dheeraj. b. Imposition of monetary penalties of Rs 50,00,000/- and Rs.10,00,000/- respectively on CA Piyush Patni (EP) and CA Pawan Kumar Gupta (EQCR). c. In addition, EP and EQCR partners are debarred for five years and three years respectively from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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