Imposing Penalties on Both the Partner and Audit Firm Does Not Constitute Double Jeopardy

The Securities Exchange Board of India (SEBI) informed NFRA that the company did not recognize in its financial statements for FY 2019-20, the interest expense on its borrowings from banks, which resulted in the overstatement of profits by the company. NFRA being a statutory authority set up under Section 132 oversees the quality of service of the auditing profession and imposes a penalty on the firm and the engagement partner for non-compliance with auditing standards and quality control standards.

The firm challenged the penalty contending that once the engagement partner has been penalized for the same alleged offence, the firm cannot be penalized for the same alleged offence as it amounts to double jeopardy. NFRA clarified that the relationship between a firm on the one hand and the engagement partner on the other hand is that of a principal and agent. They remain jointly and severally responsible for professional misconduct observed during an audit. Therefore, the action against the firm and engagement partner for the same alleged offence does not amount to double jeopardy and NFRA has complete right to punish the Engagement partner for the same alleged offence for a second time. To read other matters arising from the order.

Click Here To Read The Full Story