NFRA imposed 5 year Ban and Fine of Rs.5 Lakh on Auditor for Lapses

The National Financial Reporting Authority (NFRA) has slapped a fine of Rs.5 lakh and a five year ban on Rakesh Puri for suspected professional misconduct in the audit of Sun and Shine Worldwide Ltd (SSWL) for the financial years 2012-13 and 2013-14.

SSWL, currently renamed as Johnson Pharmacare Ltd, is a BSE-listed firm that engaged in commodities futures trading throughout the audit period.

The auditor Rakesh Puri, a partner at Y.D. & Company, was fined Rs 5 lakh by NFRA in its order. Puri has also been forbidden from conducting any audit of financial statements or internal audit of the functions and activities of any firm or body corporate for a period of five years during the ban period.

Sebi informed the regulator of an overstatement in reporting of sales and purchase numbers of Rs 1,417 crore in SSWL’s financial statements for 2012-13 and 2013-14.

As a result, NFRA launched an inquiry into Puri’s professional misconduct during the audit of SSWL. The audit files were requested from the auditor who had done the firm’s statutory audit from 2010-11 to 2014-15.

The regulator ruled that SSWL’s financial statements were grossly misstated, and the company’s reported revenue increased by 1,026 percent from Rs 159.07 crore in FY 2012-13 to Rs 1,791.01 crore in FY 2013-14.

Furthermore, the associated ‘expenses’ in the profit and loss statement, i.e. the purchase of derivative contracts, were influenced by the erroneous accounting and deceptive presentation, creating a false and inflated image of SSWL’s scale of operation.

According to the order, the auditor failed to perform audit procedures to identify these manipulations in the accounts, demonstrating his gross negligence to auditing standards and failure to question the management on such erroneous reporting, which resulted in giving a misleading picture to SSWL’s investors and stakeholders.

Sebi issued an order in September 2021 that assessed fines and barred SSWL and its directors from participating in securities markets for violating the Securities Contracts (Regulations) Act, according to the agency.

For Official Order Download PDF Given Below: