Case Studies from NFRA Order | Instances of Inappropriate Reporting by Statutory Auditor Under CARO

The internal auditor of XYZ Ltd. herein referred to as “the company” vide their report stated that the management did not carry out any physical verification of PPE. However, the statutory auditor of the company in their CARO report, reported that “We have considered the internal audit reports for the year under audit, submitted by Internal Audit Department of the Company during the year and till date, in determining the nature, timing, and extent of our audit procedures”. Also, the statutory auditor relied on information received from management without carrying out any physical verification of PPE.

NFRA observed the contradiction in the reporting by the statutory auditor. The NFRA issued a Show Cause Notice to the auditor asking them to submit the audit file. After obtaining the audit file, NFRA observed that only the internal audit report was part of the audit file, and no other working papers. NFRA held the auditor guilty of professional misconduct as merely obtaining internal audit reports and placing them in the audit file, as appears to have been done by the auditor in the instant case, does not amount to internal audit reports being “considered by the Statutory Auditors”.

Therefore, the comments by statutory auditors that “We have considered the internal audit reports for the year under audit, submitted by Internal Audit Department of the company during the year and till date, in determining the nature, timing, and extent of our audit procedures.” amounts to a false declaration.

To know more instances of non-reporting under CARO and key takeaways from NFRA’s order.

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