The National Financial Reporting Authority (NFRA) has banned the Chartered Accountant designated as Engagement Quality Control (EQC) reviewer for SRS Limited debarred from conducting audits for 1 year and also imposed a penalty of Rs. 1,00,000 for not reviewing the ETs work properly.
The regulatory body noted that the CA assumed the role of EQCR without any prior experience or formal authorization. Furthermore, the appointment by the Engagement Partner (EP) was purely verbal and lacked written documentation.
In pursuant to a letter received from the Serious Fraud Investigation Office (SFIO), Government of India, which had investigated into the affairs of SRS Ltd. and its group companies, NFRA initiated action under Section 132 (4) of Companies Act, 2013 for professional or other misconduct against CA Apoorve Bansal, the EQC Reviewer in statutory audit of SRS Ltd. for FY 2017-18.
CA Apoorve Bansal was EQC Reviewer of M/s SVP & Associates, which was the Joint Statutory Auditor of SRS Ltd. for the FY 2017-18. CA Pankaj Kumar was the Engagement Partner (EP).
SRS Ltd., one of the companies within the SRS Group dealing in the business of Jewellery, Cinema, Real Estate, Financial Services etc., was a listed Company and therefore falls under NFRA’s domain.
NFRA’s investigations found that the EQC Reviewer failed to meet the relevant requirements of the Standards on Auditing (SA) and Standard on Quality Control in several significant respects reflecting lack of professional competence to act as an EQC Reviewer for the audit of a Public Interest Entity (PIE).
The authority noted that the EQC Reviewer was found to be negligent in several areas of audit and failed to apply professional skills and due diligence sufficiently and adequately to critically evaluate the work of the EP and the ET. The EQC Reviewer, though a Chartered Accountant, was also not experienced enough to undertake the quality review and failed to assess the working papers related to important issues in the audit viz., evaluation of Going Concern Basis, Suspected Fraud, Setting of Materiality etc.
NFRA found that the CA qualified his Chartered Accountancy in 2016 and therefore had an experience of a little more than 2 (Two) years when he took up his assignment as EQC Reviewer for the statutory audit of SRS Ltd. for which the EP, had an experience of 32 (Thirty-Two) years as a Chartered Accountant. Several audit assignments including of listed companies on which the EQC Reviewer claims to have worked since October 2013 were as article assistant in the firm and hardly add to his credentials as an EQC Reviewer of a listed entity.
The authority further stated that in Para 7 ( c) of SA 220 and Para 69 of SQC 1 requires that the EQC Reviewer for an audit of the financial statements of a listed entity should be an individual with sufficient and appropriate experience and authority to act as an audit engagement partner on audits of financial statements of listed entities.
In this case the EQC Reviewer with only 2 (Two) years of experience has claimed to have reviewed the work of an EP with 32 (ThirtyTwo) years of experience. The inexperience of CA-EQCR is reflected in the fact that he accepted a “verbal appointment” as an EQC Reviewer. The reply clearly established his ignorance of the importance of his assignment of the EQC Reviewer and the casual approach in taking up the said assignment.
The allegations brought forth by the NFRA include accepting the EQC Reviewer role without the requisite experience and authorization, neglecting the responsibilities associated with the EQC Reviewer position, non-compliance with the Code of Ethics 2009, and violations of the Articles of Charge related to professional misconduct by the EQC Reviewer.
Based on the investigation and proceedings under Section 132 (4) of the Companies Act and after giving the EQC Reviewer adequate opportunity to present his case including personal hearing, the authority held the EQC Reviewer guilty of professional and other misconduct in terms of his obligation and responsibilities set out in the relevant paras of SA 220 read with SQC 1 and imposed monetary penalty of Rs. 1,00,000/- (Rupees One Lakh).
In addition, CA was also debarred for 1 year (One year) 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.
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