Home Case Index All Cases Companies Law Companies Law + NFRA Companies Law - 2023 (7) TMI NFRA This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (7) TMI 1244 - NATIONAL FINANCIAL REPORTING AUTHORITYProfessional Misconduct - Failure in understanding the nature of business of MACEL resulting in lapses in audit relating to fraudulent diversion of funds - Lapses in audit relating to accounting of related party borrowings and bank borrowings resulting in misstatements by Rs 2,363.34 crore due to fraud - Lapses in audit relating to misstatement of Rs 909.99 crores in Cash Flow Statement - Lapses in evaluation of corporate guarantee and creation of charge on the assets of the company (Rs 130 crores) - Lapses in making audit conclusions and forming audit opinion - other non-compliances. HELD THAT:- The Audit Firm was charged with various omissions and commissions observed in the audit, as discussed in the preceding paragraphs, for its role as the statutory auditor appointed under section 139 of the Act. The Audit Firm was also charged with failure to comply with para 2 of SA 220 and para 3 of SQC 1, which stipulate that Quality Control Systems, Policies and Procedures are the responsibility of the Audit Firm. The Audit Firm was also charged with failure to establish and maintain a system of quality control to provide it with reasonable assurance that: a) The firm and its personnel comply with professional standards and regulatory and legal requirements; and b) The reports issued by the firm or engagement partners are appropriate in the circumstances. On examining pointwise reply it is found that all charges are proved except the charge relating to constitution of the Audit Committee. Therefore, CA Lavitha Shetty, Proprietor of the Audit Firm is also responsible for non-compliance with provisions relating to Quality Control Systems, Policies and Procedures of SA 220 and SQC 1. Articles of Charges of Professional Misconduct by the Statutory Auditor - HELD THAT:- The Auditor has made a series of serious departures from the Standards and the Law, in conduct of the audit of MACEL for FY 2018-19 - it is proved that the Auditor had issued unmodified audit opinion on the Financial Statements without reporting diversion of funds, evergreening of loans and committed other serious lapses during performance of audit. Based on the discussion and analysis, it is concluded that the Auditor has committed Professional Misconduct as defined in Section 132 (4) of the Companies Act, read with section 22 the Chartered Accountants Act 1949 (the CA act), as amended from time to time. 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 - The Auditor was required to ensure compliance with Standards on Auditing, Laws and Regulations to achieve the necessary audit quality and lend credibility to Financial Statements to facilitate its users. As detailed in this order, substantial deficiencies in Audit, abdication of responsibility and inappropriate conclusions on the part of the Auditors establish her professional misconduct and lack of due diligence. Despite being a qualified professional, the Auditor has not adhered to the Standards and have thus not discharged the duty cast upon her. Considering the proved professional misconduct, the nature of violations and principles of proportionality, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is hereby ordered that “Imposition of a monetary penalty of Rs Five Lakhs only upon CA Lavitha Shetty. In addition, CA Lavitha Shetty is debarred for a period of five years 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”. Application disposed off.
|