NFRA Penalises Partners of Audit Firm M/s Haribhakti and Co. LLP for Audit Lapses

The National Financial Reporting Authority (NFRA) has imposed penalties of Rs. 8 lakh on two auditors and prohibited them for up to five years for professional misconduct in connection with the audit of DB Realty for the financial year 2016.

The order was issued after the NFRA received information from SEBI in October 2022 about misstatements in the financial statements of DB Realty Ltd. (now known as Valor Estate Ltd.).

The regulator then began a suo moto investigation into the professional conduct of DB Realty Ltd’s (DBRL) statutory auditors under the Companies Act of 2013.

Additionally, the NFRA fined Chetan Desai Rs. 5 lakh and Rakesh Rathi Rs. 3 lakh. Both were partners with the audit firm Haribhakti and Co LLP, which was statutory auditor of DBRL ffor the financial year 2015-16.

Desai and Rathi were also barred from being appointed as auditors or internal auditors for five years and three years, respectively, from conducting financial statement audits or internal audits of the functions and activities of any company or body corporate, according to NFRA’s 32-page order issued on Monday.

During an audit of Rs.3,894.43 crore in guarantees and securities provided by DBRL to its related parties, the audit regulator determined that Chetan Desai failed to exercise professional scepticism and judgement, perform appropriate audit procedures, and obtain sufficient appropriate audit evidence.

Desai also failed to perform appropriate audit procedures and obtain enough audit proof during an audit of DBRL’s loans and advances of Rs.1,326.92 crore, of which Rs.1,079 crore was given to related parties, many of whom had negative net worth, according to the NFRA order.

The NFRA noted that Chetan Desai did not participate in main audit procedures. Desai’s role is limited to planning, reviewing financial statements, and finalising audit reports, with no engagement in significant areas such as control testing and substantive testing.

As a result, the regulator stated that he failed to direct and monitor the audit engagement.

The regulator’s investigation also indicated that Rakesh Rathi failed to conduct an appropriate review of major decisions taken by the engagement team, it added.

For Official Order Download PDF Given Below: