2.5 Cr Penalty on CA and CA Firm; CA Auditor of RCFL Debarred for 5 years by NFRA:

2.5 Cr Penalty on CA and CA Firm; CA Auditor of RCFL Debarred for 5 years by NFRA The National Financial Reporting Authority (NFRA) in the exercise of powers under Section 132 (4) (c) of the Companies Act, 2013 has imposed the penalty of Rs. 2 Crores on M/s Shridhar & Associates the 'Audit Firm', and Rs. 50 Lakhs on CA Ajay Vastani, who was the Engagement Partner (the 'EP'), for the statutory audit of Reliance Commercial Finance Limited ('RCFL'), for the Financial Year (FY) 2018-19. CA Ajay Vastani has also been debarred for 5 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. As per the financial statements, RCFL's total assets were Rs. 13,504 crore and total external liabilities were around Rs. 12,623 crore as of 31.03.2019. The external liabilities included a debt of over Rs. 10,284 crore, in the form of debt securities and borrowings from banks, commercial papers etc. Given the high degree of public interest in this listed entity, it was the duty of the Auditors to conduct the audit with the highest level of professional skepticism and due diligence and report their opinion in an unbiased manner. Despite the resignation of the previous auditor and a reporting of suspected fraud, the Auditors failed to conduct the audit as per standards on auditing. The major lapses started from the acceptance of the initial appointment of Shridhar & Associates as statutory auditors and continued throughout the risk assessment, audit of loans, evaluation of going concern and reporting. The material misstatements in the financial statements due to inadequate provision, unjustified valuation of loans and irrational business practices were concurred by the Auditors in disregard of their responsibilities under the Act and SAs. The deficiencies in the audit resulted in rendering the audit opinion unreliable as the material misstatements in the financial statements assertions remain unreported. The Auditors also demonstrated a lack of professionalism by rationalising the actions of the Company, inappropriately evaluating the work of the previous auditor, and ignoring the fundamentals of auditing. Such actions of the Auditors necessitate stricter sanctions and penalties taking into account the letter and spirit of the law. Click on the Link Below to read the Order: