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2024 (1) TMI 589 - NFRA - Companies LawProfessional Misconduct - Failure to evaluate the management's assessment of the entity's ability to continue as a Going Concern - Failure relating to Revenue Recognition - Failures relating to Audit Documentation - Failures relating to Audit Evidence for inventory - Failure to give an appropriate audit opinion - Lapses in fulfilling duties related to Engagement Quality Control (EQC) Reviewer - Failure to determine Materiality - Failure to plan the audit of Financial Statements - Failures relating to communication with Those Charged With Governance - Failures relating to communicating deficiencies in internal control to TCWG and Management - Failures relating to identifying and assessing the risks of material misstatement - Failure to report non-compliances with provisions of the Companies Act 2013 - penalties and sanctions. HELD THAT:- The EP issued audit opinion on the Financial Statements without any basis. We also conclude that the EP has committed Professional Misconducts as defined under section 132 (4) of the Companies Act 2013 in terms of Section 22 of the Chartered Accountant Act 1949 (CA Act) as amended from time to time, and as detailed below: i. The EP committed professional misconduct as defined by Section 132 (4) of the Companies Act, read with Section 22 and clause 7 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor 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 EP failed to conduct the audit in accordance with the SAs and applicable regulations as well as due to his failure to report the material misstatements and non-compliances of the Company in its Financial Statements, as explained in the paras 24 to 93 above. ii. The EP committed professional misconduct m terms of Section 132 (4) of the Companies Act, read with Section 22 and clause 8 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor 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 EP failed to conduct the audit in accordance with the SAs and applicable regulations as well as due to his failure to report the material misstatements and non-compliances of the Company in the Financial Statements, as explained in the paras 24 to 93 above. iii. The EP committed professional misconduct as defined by Section 132 (4) of the Companies Act, read with Section 22 and clause 9 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor 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 EP failed to conduct the audit in accordance with the SAs (as explained in paras 24 to 93 above), but falsely reported in his audit report that the audit was conducted as per SAs. Therefore, it is concluded that the charges of professional misconduct enumerated in the SCN dated 16.06.2023 stands proved based on analysis of the evidence in the Audit File, the Audit Report issued by auditor, the submissions made by auditor, and other materials available on record. Penalties and sanctions - HELD THAT:- Considering the proved professional misconducts and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, we, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, hereby order imposition of monetary penalty of INR 3,00,000/- upon CA Pankaj Kumar. In addition, CA Pankaj Kumar is debarred for 3 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. This debarment shall run concurrently with Penalty Order dated 21.04.2023 in respect of audit of M/s. SRS Ltd. issued against CA Pankaj Kumar.
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