NFRA imposes 3 Lakh Penalty and 3 Year Ban on CA and CA Firm w.r.t. Statutory Audit

The National Financial Reporting Authority (NFRA) in the matter of SRS Real Infrastructure Limited has imposed a Penalty of Rs.3 Lakh and 3 Year Ban on CA and CA Firm w.r.t. Statutory Audit.

Based on the discussion, it is proved that the EP issued an audit opinion on the Financial Statements without any basis. We also conclude that the EP has committed Professional Misconduct as defined under section 132 (4) of the Companies Act 2013 in terms of Section 22 of the Chartered Accountant Act 1949 (CA Act) as amended from time to time, and as detailed below:

1. The EP committed professional misconduct as defined by Section 132 (4) of the Companies Act, read with Section 22 and clause 7 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor is guilty of professional misconduct when he “does not exercise due diligence or is grossly negligent in the conduct of his professional duties”. This charge is proved as the EP failed to conduct the audit in accordance with the SAs and applicable regulations as well as due to his failure to report the material misstatements and non-compliances of the Company in its Financial Statements, as explained in the paras 24 to 93 above.

2. The EP committed professional misconduct m terms of Section 132 (4) of the Companies Act, read with Section 22 and clause 8 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor is guilty of professional misconduct when he ”fails 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”. This charge is proved as the EP failed to conduct the audit in accordance with the SAs and applicable regulations as well as due to his failure to report the material misstatements and non-compliances of the Company in the Financial Statements, as explained in the paras 24 to 93 above.

3. The EP committed professional misconduct as defined by Section 132 (4) of the Companies Act, read with Section 22 and clause 9 of Part I of the Second Schedule of the Chartered Accountants Act 1949 (as amended from time to time), which states that an auditor is guilty of professional misconduct when he ”fails to invite attention to uny material departure from the generally accepted procedure of audit applicable to the circumstances”. This charge is proved since the EP failed to conduct the audit in accordance with the SAs (as explained in paras 24 to 93 above), but falsely reported in his audit report that the audit was conducted as per SAs.

Therefore, we conclude that the charges of professional misconduct enumerated in the SCN dated 16.06.2023 stands proved based on our analysis of the evidence in the Audit File, the Audit Report issued by an auditor, the submissions made by the auditor, and other materials available on record.

Order

Independent Auditors of Publicly Listed Companies are expected to demonstrate sufficiency and appropriateness of audit work in every aspect of the critical building blocks of an audit of the Financial Statements of PIE. Failure of the auditor to meet the requirements envisaged under the Law and Professional Standards on Auditing are conspicuous in this audit engagement performed by the EP.

Section 132(4) (c) of the Companies Act 2013 provides that National Financial Reporting Authority shall, where professional or other misconduct is proved, have the power to make order for:

A) imposing penalty of (I) not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and (II) not less than five lakh rupees, but which may extend to ten times of the fees received, in case of firms;

(B) debarring the member or the firm from (1) 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; or (II) performing any valuation as provided under section 247, for a minimum period of six months or such higher period not exceeding ten years as may be determined by the National Financial Reporting Authority.

Considering the proved professional misconducts and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, we, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, hereby order imposition of monetary penalty of 3,00,000 (Rupees Three Lakhs) upon CA Pankaj Kumar. In addition, CA Pankaj Kumar is debarred for 3 (Three) 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 debarment shall run concurrently with the Penalty Order dated 21.04.2023 in respect of audit of M/s. SRS Ltd. issued against CA Pankaj Kumar.

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