"Learnings from NFRA": ICAI releases Analysis of Audit Misconduct Orders/Reports
The publication compiles analyses of significant NFRA orders, focusing on case studies that highlight common lapses in adherence to auditing standards
ICAI Audit Analysis – Audit Misconduct Reports – Audit Misconduct Cases – ICAI Audit Misconduct Study – taxscan
ICAI Audit Analysis – Audit Misconduct Reports – Audit Misconduct Cases – ICAI Audit Misconduct Study – taxscan
The Western India Regional Council (WIRC) of the Institute of Chartered Accountants of India ( ICAI ) has released a detailed analysis of Audit Misconduct Orders/Reports by the National Financial Reporting Authority ( NFRA ).
The publication by Western India Regional Council provides critical insights drawn from the National Financial Reporting Authority’s ( NFRA ) audit orders and reports. It seeks to aid professionals and firms in understanding the evolving regulatory expectations while addressing lapses in audit practices.
Key examples include cases involving Dewan Housing Finance Limited, Coffee Day Global Limited, and Sun & Shine Worldwide Limited.
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NFRA observed severe breaches of auditing standards, such as improper appointment of statutory auditors and lapses in audit documentation. The audit firm failed to ensure compliance with Standards on Auditing (SAs), including SA 210 (terms of engagement) and SA 700 (reporting standards). NFRA criticized the auditors for issuing an unmodified opinion on financial statements despite missing key information and material discrepancies.
The case highlighted auditors' failure to uphold independence, an essential auditing principle. Additionally, tampering with audit files was noted, where modifications to Excel files were detected post-NFRA inquiry, in violation of SA 230 on audit documentation. Furthermore, the auditors overlooked fraudulent transactions amounting to ₹3,769.61 crores, failing to assess and report these as required under SA 240.
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The auditors failed to evaluate the company's accounting policies and neglected to recognize red flags, including inflated purchase and sales figures. Despite significant deviations in revenue recognition, no corrective measures were taken, demonstrating a lack of professional skepticism. Overstatements of up to ₹1,310 crores were documented, significantly misleading stakeholders.
The calls for improved audit planning, robust documentation, and enhanced independence among auditors. It also emphasizes that audit firms must strengthen internal controls and quality assurance mechanisms to avoid repeating mistakes cited in NFRA observations.
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The foreword by CA. Ankit Rathi, Chairman of the Western India Regional Council, encourages professionals to view these cases as a learning opportunity. He noted that such insights are critical for enhancing the credibility of the auditing profession and aligning with global best practices.
The publication can be accessed by clicking the blue button below.
To Read the full text of the Order CLICK HERE
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