The National Financial Reporting Authority (NFRA) has taken decisive action against alleged misconduct, debarring two Chartered Accountants (CAs) for a period ranging between 5 to 10 years. Additionally, an audit firm, M/s Pathak, H.D. & Associates, has been slapped with a hefty fine of up to ₹3 crore.
This stringent action stems from a financial transaction involving Reliance Capital, a matter of considerable public interest due to its listed status. NFRA's order, dated April 12, imposes monetary penalties of ₹3 crore on the audit firm, along with fines of ₹1 crore and ₹50 lakh on Engagement Partner CA Parimal Kumar Jha and Engagement Quality Control Review Partner CA Vishal D Shah, respectively.
Furthermore, the order decrees a 10-year debarment for the Engagement Partner and a 5-year debarment for the Engagement Quality Control Review Partner from being appointed as auditors or internal auditors, or from undertaking any audit-related activities in respect of financial statements or internal audit functions of any company or body corporate.
The case under scrutiny pertains to fiscal year 2018-19, during which Reliance Capital reportedly had substantial loans from banks and other external borrowings totaling ₹44,000 crore. Despite the gravity of the situation and the fiduciary duty owed to stakeholders, NFRA found lapses in the audit conducted by the implicated parties.
NFRA's order highlights the failure of the auditors to exercise professional skepticism and due diligence, leading to material misstatements in Reliance Capital's financial statements. The auditors' actions, including rationalizing the company's questionable practices and disregarding accounting and auditing standards, have been deemed as recklessness and unprofessionalism.
The order emphasizes that such misconduct warrants stringent sanctions in alignment with legal provisions. NFRA concludes that professional misconduct has been established, justifying the imposition of fines and debarments.
This action underscores NFRA's commitment to upholding the integrity and transparency of financial reporting, sending a clear message to the auditing profession regarding the consequences of negligence and professional misconduct.
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