Priyanka Kumari | Nov 27, 2023 |
NFRA imposes 5-year ban on CA auditor for lapses
The National Financial Reporting Authority (NFRA) imposed a penalty on an auditor of Rs.5 lakh and banned him from auditing MAN Industries for the financial year 2016-17.
Nilesh Chheda, the Engagement Partner (EP) for the statutory audit of MAN Industries (India) Ltd (MIIL) for FY17, was penalized by Rs.5 lakh by the regulator.
It also forbade Chheda from conducting any audit of financial statements, internal audits, or business activities of any company for corporate for the next five years.
The order was issued after the NFRA received a letter from the Securities and Exchange Board of India (SEBI) alleging the company’s financial challenges. Following that, the regulator started an investigation into the professional or other misconduct of MIIL’s statutory auditor.
NFRA identified the auditor mistakenly ‘Qualified’ his opinion on consolidated financial statements, indicating that they reflected a ‘true and fair view’ except for the non-consolidation of its subsidiary Merino Shelters Pvt Ltd (MSPL) in its 30 page order issued on Wednesday.
According to NFRA, this is untrue because the impact of non-consolidation was considerable and pervasive, with MSPL’s assets and liabilities accounting for about 19.20% and 28.96% of MIIL’s total assets and liabilities, respectively.
In such situations, an adverse opinion was required, but the auditor failed to provide it.
NFRA also discovered that the company’s financial statements lacked required disclosures under Indian Accounting Standards (IndAS).
The auditor failed to disclose critical and sensitive information about related party transactions, and full loan details, for example, were not reported as required by the audit regulation.
The regulator found that the disclosures about the credit risk profile of trade receivables were incorrect and did not comply with the norms.
According to the judgment, Chheda failed to gather Sufficient Appropriate Audit Evidence (SAAE) in crucial areas such as non-consolidation of a substantial subsidiary, credit risk assessment of trade receivables, and disregarding risk assessment procedures and related responses.
NFRA also found that Chheda’s audit work had no sufficiency and appropriateness in key areas such as audit strategy, planning, analytical procedures, materiality determination, and assessing the risk of material misstatement by understanding the entity’s environment and internal control.
This resulted in noncompliance with auditing requirements, it added.
In case of any Doubt regarding Membership you can mail us at [email protected]
Join Studycafe's WhatsApp Group or Telegram Channel for Latest Updates on Government Job, Sarkari Naukri, Private Jobs, Income Tax, GST, Companies Act, Judgements and CA, CS, ICWA, and MUCH MORE!"