National Financial Reporting Authority ( NFRA ) in a matter under Section 132(4) of the Companies Act 2013 read with Rule 11(6) of National Financial Reporting Authority 2018 imposed Rs 50 lakh fine and 2 year ban on audit firm.
The Order disposed of the Show Cause Notice ( SCN ) issued to an CA Firm and auditors who is a member of the Institute of Chartered Accountants of India ( ICAI ) and was the Engagement Partner (EP) for the statutory audit of CMI Limited ( CMIL ) for the Financial Years (FY) 2019-2020, 2020-21 and 2021-22.
An allegation of fraud in auditing was argued against CA firm and auditors. There is no evidence in the Audit File to show that the auditors performed verification of GST returns and reconciliation of turnover with books of account, verification of sales invoices with dispatch orders. There is no evidence in the Audit File to show that the auditors applied analytical and cut-off procedures.
The statutory auditors, both individuals and firms, are appointed by the members of companies under Section 139 of the Companies Act. The statutory auditors, including the Engagement Partners (EP), the Engagement Team and Review Partners that conduct the audit are bound by the duties and responsibilities prescribed in the Act, the Rules made thereunder, the Standards on Auditing (SA), including the standards on quality control and the Code of Ethics, the violation of which constitutes professional misconduct, and is punishable with penalty prescribed under Section 132(4) of the Act.
The NFRA found that there was failure to disclose a material fact known to them which is not disclosed in a financial statement, but disclosure of which is necessary for making such financial statement where the Chartered Accountant (CA) is concerned with that financial statement in a professional capacity.
Further found that the CA failed to report a material misstatement known to them to appear in a financial statement with which the CA is concerned in a professional capacity. Also failed to exercise due diligence and being grossly negligent in the conduct of professional duties.
Considering the proven professional misconduct and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, exercising the powers under Section 132(4)(c) of the Companies Act, 2013, the authority of imposed monetary penalty of ₹ 50,00,000/- (Rupees Fifty Lakhs) upon the Audit firm and Monetary penalty of ₹ 10,00,000/- (Rupees Ten Lakhs) upon CA
Further the CA was also debarred for 2 (Two) 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.
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