CA Debarred for one year along with imposition of monetary penalty for gross negligence during statutory Audit [NFRA Order]

The National Financial Reporting Authority(NFRA) has Debarred CA for one year along with imposition of monetary penalty for gross negligence during statutory Audit.

This Order disposes of the Show Cause Notice (‘SCN’ hereafter) No. NF-20012/5/2022 dated 23.09.2022, issued to CA Sachin Kansal (ICAI Membership No. 137191), proprietor of M/s S. Kansal & Associates (ICAI Firm Registration No. 13493 7W) (‘Audit Firm’ hereafter), Ahmedabad, who is a Member of the Institute of Chartered Accountants of India (‘ICAI’ hereafter) and was the Engagement Partner (‘EP’ hereafter) for the statutory audit of M/s Anshu’s Clothing Ltd (now known as Aditri Gems & Jewels Ltd), (‘Anshu’ or ‘the company’ hereafter) for the Financial Year (‘FY’ hereafter) 2015-16.

NFRA’s investigation inter alia found that the company had not recognised accrued interest, amounting to Rs.143.98 lakhs, on loans from bank and NBFCs in violation of Section 128 and Section 129 of the Act and AS 1. With proper accounting of interest accrued the reported loss of the company would have increased by about 8 times. Such a material and pervasive misstatement in the financial statement of the company was not reported by EP in his Auditor’s report. Further, deferred tax assets of Rs.9.07 lakhs have been recognized by the company despite the company being in loss for several years, and lack of certainty that the company would be able to realise the deferred tax assets in future. Anshu was required to prepare its financial statement in the format given in Schedule III to the Companies Act, 2013 but various instances of non-compliance with the format of financial statements have also been noted, which have not been reported by EP in the Auditor‘s Report.

It was also noted that the EP has not assembled the Audit File within 60 days of signing of Auditor’s report and has not appointed Engagement Quality Control Reviewer despite Anshu being a listed entity. The EP did not maintain the agreement on terms of Audit engagement in the Audit File, nor did the EP maintain any written communication with TCWG in the Audit File.

Based on investigation and proceedings under Section 132 (4) of the Companies Act, 2013 and after giving him opportunity to present his case, NFRA has found the EP guilty of professional misconduct and imposes through this Order the following monetary penalties and sanctions, which will take effect from a period of 30 days from issuance of this Order:

(i) Imposition of a monetary penalty of Rs.1,00,000 (Rupees One Lakh) upon the EP, CA Sachin Kansai.

(ii) CA Sachin Kansal is also debarred for one year from being appointed as an auditor or internal auditor or undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.

For Official Order Download PDF Given Below: