2 CAs Debarred for 5 years along with penalty of Rs. 5 Lakhs in DHFL Matter

The National Financial Reporting Authority (NFRA) barred two chartered accountants (CAs), one of whom worked as an engagement partner (EP), for misconduct in the profession while conducting a statutory audit of Dewan Housing Finance Corporation Ltd. (DHFL) for the financial year 2017-18 and slapped a penalty on them of Rs. 5 lakh each.

Jignesh Mehta, the EP, and Amit Vinay Chaturvedi, the DHFL audit engagement quality control review partner (EQCR), are the CAs. Both the CAs are partners of Chaturvedi and Shah LLP.

According to an order issued by the NFRA bench of Dr. Ajay Bhushan Prasad Pandey (chairperson), Smita Jhingran, and Praveen Kumar Tiwari (full-time members). In several significant areas of audit, the EP (CA Mehta) failed to meet the necessary requirements of auditing standards (SAs) and violated the Companies Act.

The EP was found to be grossly negligent and failed to use professional scepticism and due diligence sufficiently and adequately to challenge management assertions.

Following media allegations on the alleged siphoning of public funds in the amount of Rs. 31,000 crore by the directors of DHFL, the NFRA executed an audit quality review.

NFRA goes into more detail about Section 134(5) of the Act, which says that the board has to say in its report that “the annual accounts are prepared on a going concern basis.” They stress that EP did not get enough audit evidence to show that management was using the going concern basis of accounting correctly when making the financial statements.

According to the authority, the EP was obligated to get the basis for the assessment from management and to analyse the entity’s ability to sustain itself as a going concern, but in place of doing so, the EP decided that the company is a going concern based on his knowledge.

DHFL has over 250 branches in India. In the company’s Annual General Meeting (AGM), Chaturvedi and Shah LLP was selected as the company’s statutory auditor for the financial year 2017–18. CA Mehta, the EP, indicated in his independent auditor report that the reports on the finances of the DHFL branch offices audited under Section 143(8) of the Act by branch auditors had been correctly dealt with by him while preparing the audit report.

The 250 branch offices of the company’s audited financial statements included returns for the financial year that ended on the audit date, according to the audit report.

NFRA, on the other hand, claims that there is no evidence in the audit file to prove the existence of legal appointments of any branch auditor by the Annual General Meeting (AGM) and that Chaturvedi and Shah LLP audited the entire firm, including all 250 branches. In total violation of his duty, the EP depended on the illegally elected branch auditor’s reports, which were made in violation of the SAs.

CA Mehta, the EP, was also found to have failed to ensure that the financial statements were prepared in all significant ways in accordance with the statutory financial reporting system. As a result, “The EP’s audit opinion is therefore without foundation.”

The EQCR partner (CA Chaturvedi) failed to objectively analyse and interrogate the EP when the EP failed to meet relevant requirements of the SAs and violated the Act and the code of ethics,” according to a separate order from the NFRA.

In the independent auditor’s report about the audit of branches, there was false information. There were also material misstatements in the consolidated financial statements (CFS), noncompliance with National Housing Bank (NHB) instructions that were not looked into, internal financial controls that were not checked, the risk of material misstatement not looked at, the going concern assumptions not evaluated, and the related party not checked.

NFRA has already issued orders against DHFL auditors who conducted audit work for the company.

DHFL defaulted in May 2019, and banks categorised it as a non-performing asset (NPA) between October and December 2019, before declaring it a ‘fraud‘ from March 2020 onwards.

The Union Bank of India (UBI), leader of a 17-bank consortium that included the IDBI Bank, had filed a complaint against the DHFL, Wadhawan siblings and others for allegedly hatching a criminal conspiracy to defraud the banks of approximately Rs. 43,000 crore.

Based on the UBI’s allegation, the Central Bureau of Investigation (CBI) filed its First Information Report (FIR) in June 2022 against the Wadhawans, DHFL, and others.

According to the CBI, the accused Wadhawan brothers and others convinced a consortium of banks, principally public sector banks (PSBs), to release huge loans worth Rs. 42,871.42 crore.

A large percentage of the loans were reportedly siphoned off or misappropriated by claiming the DHFL’s books of accounts, fraudulently defaulting on repayments to lenders, and imposing a Rs. 34,615 crore unfair loss.

To Read Official Order Download the PDF Given below: