CA Firm debarred for 10 years by NFRA for Failure to maintain Audit File

The National Financial Reporting Authority(NFRA) in the matter of CAT. Raghavendra has debarred CA Firm for 10 years for Failure to maintain Audit File.

Pursuant to the information received from the Ministry of Corporate Affairs regarding irregularities observed by Financial Reporting Review Board (FRRB, hereafter) of ICAI in the Financial Statements of FY 2013-15 of Bartronics, whose equity shares are listed at Bombay Stock Exchange (‘BSE’ hereafter) and National Stock Exchange of India Ltd (‘NSE’ hereafter), NFRA initiated an investigation under Section 132(4) of the Companies Act 2013 (the Act, hereafter) into the role of the statutory auditors, CAT. Raghavendra, for the audit of financial statements for FY 2013-15.

Despite repeated communication, CAT. Raghavendra did not submit the Audit File and SQC policy of the audit firm forcing NFRA to conclude that he either had no such documents with him or is unwilling to cooperate with NFRA in discharge of its statutory responsibility. This is a professional misconduct as NFRA has powers of Civil Court under Section 132( 4 )(b) of the Act in respect of discovery and production of books of account and other documents and inspection of any books, registers and other documents of any person summoned under Section 132(4)(b).

NFRA’s investigations have revealed that EP had committed professional misconduct by misusing the Emphasis of Matter for covering up misstatements in the financial statements and including under the “Emphasis of Matter” the matters that warranted consideration for modifying his audit opinion. These matters included non-provision of interest on loans, doubtful capital advances etc. In addition, NFRA’s investigations have brought out various other lapses in the Statutory Audit such as not reporting the failure of the Company to report under the Companies Act, 1956, and wrong recognition of deferred tax assets etc.

Further into Findings:

During FY 2013-15, equity shares of Bartronics were listed on the BSE Limited and NSE and its Foreign Currency Convertible Bonds were listed on the Singapore Stock Exchange. As per BSE website, as on 31.03.2015, the company had substantial public holding with 87.46% of shares held with public. The role of the auditors in such cases involving substantial interest becomes more important.

In view of the fact that the EP has not only shown blatant disregard to the Standards on Auditing in conducting audit of a company that affects public interest, but has also shown scant regard to the legal process undertaken by NFRA under Section 132 (4) of the Companies Act, 2013 we take a serious view of his professional misconduct, which assumes further importance in light of the fact that he had long association with the company being its statutory auditor for five financial years from FY 2012-13 to FY 2017-18. As per information available in Annual Report for FY 2013-15, EP was paid Rs.12,20,000 (which included audit fees of Rs.8,00,000 and limited reviews of Rs.4,00,000 and Rs.20,000 for other services).

Based on its investigation and proceedings under Section 132 (4) of the Act and after giving multiple opportunities to the EP to present his case, NFRA has found that the EP is guilty of professional misconduct and imposes, through this Order, the following monetary penalties and sanctions that will take effect after 30 days from the date of issuance of this Order:

i. Imposition of a monetary penalty of Rs.5,00,000 (Rupees Five Lakhs) on EP, CAT. Raghavendra;

ii. Debarment of EP, CA T. Raghavendra for ten 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 Order will become effective after 30 days from the date of its issue.

For Official Order Download PDF Given Below: