Two Chartered Accountants Debarred for Two Years by NFRA for Audit Lapses, Gets Rs. 2 Lakh Fine

In a recent ruling, the National Financial Reporting Authority (NFRA) has debarred two Chartered Accountants for two (02) years along with a fine of Rs. Two lakh each for audit lapses in connection with the statutory audit of Women Next Loungeries Ltd for Financial Year 2016-17.

NFRA is India's independent regulator in respect of matters relating to accounting and auditing of prescribed classes of entities which can be broadly described as 'Public Interest Entities' or PIES.

NFRA received a complaint to investigate into professional misconduct by the Engagement Partner, CA Hemant Khator, partner of M/s GSV & Co and CA Narayan Prasad Swamy, in consequent to the information received from the Office of Registrar of Companies, Mumbai, regarding the investigation carried out by office of Regional Director, Mumbai into the affairs of Women Next Loungeries Ltd.

The investigation unearthed a number of significant failures on the part of the EP, Hemant Khator during the audit for FY 2016-17. The Audit failures include the EP's failure to plan the audit and understand the entity and its environment, failure to determine the materiality and performance materiality, failure to obtain the audit evidence regarding the existence and condition of inventory, failure to identify the related party and related party transactions, failure to obtain external confirmations for the Trade Receivables & Trade Payables, failure to report the non-compliance with laws & regulations, and failure to identify and communicate with TCWG etc. Such failures were in violation of the law and the Standards of Auditing, and led to professional misconduct as conceived in section 132(4) of the Act.

Finding the CA guilty of professional misconduct, the NFRA concluded that “Given the actions and omissions of the EP, it is established that the EP, CA Hemant Khator, did not comply with the stipulations in the Chartered Accountants Act, 1949 (CAs Act) and showed gross negligence and lack of due diligence in performing the statutory audit of WNLL. In addition, the EP, CA Hemant Khator has not ensured audit quality and was grossly negligent in his professional duties by not adhering to the requirements laid down by the relevant SAS. This has led to the issuance of an audit report that is not backed by valid audit evidence and is lacking quality in the audit work. Specifically, the following failures on the part of EP, CA Hemant Khator as contained under the Articles of Charges in the SCN are established.”

To Read the full text of the Order CLICK HERE

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