60 Lakhs Penalty on CA and CA Firm: CA Debarred for 5 Years for Professional Misconduct

National Financial Reporting Authority (NFRA) has imposed a total of Rs. 60 Lakhs Penalty on Chartered Accountant (CA) and CA Firm and debarred the CA for Professional Misconduct.

This decision has been made in the matter of M/s M H Dalal & Associates, Chartered Accountants (Firm Registration No 112449W) and CA Devang Dalal (ICAI Membership No 109049) under Section 132(4) .of the Companies Act 2013 read with Rule 11(6) of National Financial Reporting Authority Rules 2018.

NFRA’s Observation:

128. We, therefore, conclude that the Audit Firm has failed to monitor and control the quality of this audit engagement and integrity of the audit files as audit documentation by the Firm completely fails to ensure even the minimum essential to meet the requirements of SQC 1 and SA 230 as mentioned in para 75 to 123 of this Order. The fundamental aspects of integrity of audit files, accountability of the Firm and its personnel, maintaining sufficient appropriate audit evidence for the audit planning, performance, and basis for conclusions for achieving audit objectives are seriously compromised as has been detailed on pre-pages. Consequently, the Audit Work Papers maintained by the Firm are not found to meet the compliance requirements of SA 230. In not having reviewed and rectified these deficiencies, the Audit Firm is guilty of serious professional misconduct.

129. Therefore, as discussed above, the Audit Firm has made departure from the Standards and the Companies Act, 2013 in the conduct of the audit of MIIL for FY 2020-21. As is evident from the above discussion, the Audit Firm has given an unmodified opinion in SFS and a qualified opinion on the CFS without any basis. The poor quality of audit, incomplete documentation and attempt to mislead through evasive replies further compounds the professional misconduct on the part of the Audit Firm. Based on the foregoing discussion and analysis, we conclude that the Audit Firm has committed professional or other misconduct, as defined in the Act. In an audit engagement assigned to an Audit Firm, the responsibility of the Audit Firm is to ensure its systems and processes are conducive to a high-quality audit in compliance with the Law and Professional Standards. We find that the Firm has failed in this regard.

F. Findings on Articles of Charges of Professional Misconduct by the Auditors

131. Based on the foregoing discussion and analysis, we conclude that the Auditors have 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, as detailed below:

i. The Auditors committed professional misconduct of failure to disclose a material fact known to them which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where they are concerned with that financial statement in a professional capacity” (Refer Clause 5 of Part I of the Second Schedule of the CA Act).

This charge is proved as explained in Section C and D above.

ii. The Auditors committed professional misconduct of failure to report a material misstatement known to them to appear in a financial statement with which they are concerned in a professional capacity. (Refer Clause 6 of Part I of the Second Schedule of the CA Act).

This charge is proved as explained in Section C and D above.

iii. The Auditors committed professional misconduct by not exercising due diligence and being grossly negligent in the conduct of their professional duties.(Refer Clause 7 of Part I of the Second Schedule of the CA Act).

This charge is proved as explained in Section C, D and E above.

iv. The Auditors committed professional misconduct by failing 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. (Refer Clause 8 of Part I of the Second Schedule of the CA Act).,

This charge is proved as explained in Section C, D and E above.

v. The Auditors committed professional misconduct by failing to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances. (Refer Clause 9 of Part I of the Second Schedule of the CA Act).

This charge is proved as explained in Section C, D and E above.

Penalty

A monetary penalty of Rs.10,00,000/- (Rupees Ten Lakhs) has been imposed upon CA Devang Dalal and he is debarred for 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.

Monetary penalty of Rs.50,00,000/- (Rupees Fifty Lakhs) has also been imposed upon his Firm M/s M H Dalal & Associates.

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