NFRA Sums Up Mandatory Audit Procedures Under SAs for Verifying Revenue, While Penalizing & Debarring Auditor for Lapses

The National Financial Reporting Authority (NFRA) initiated action under section 132 (4) of Companies Act 2013 against CA for professional or other misconduct in the statutory audit. This was following to the information received from Securities Exchange Board of India (SEBI) that the Financial Statements did not present a true and fair view as the company did not recognise the full interest cost on its Borrowings from banks, which were classified as Non-Performing Assets (NPA) by those banks.

The Financial Statements of company were materially misstated due to partial recognition of interest cost on Borrowings classified as NP As by the Banks and non-recognition of interest cost resulting in under-statement of losses which were approximately 30% to 173% of the reported losses. The EP instead of issuing modified opinion, issued unmodified opinion and referred the matter in an Emphasis of Matter which is in contravention of SA 706.

Based on NFRA’s investigation and proceedings under section 132 (4) of the Companies Act and after giving him opportunity to present his case, NFRA found the EP guilty of professional misconduct and order a monetary penalty of Rs. 3,00,000/- (Rupees Three Lakhs only). In addition, the EP is debarred for 2 years (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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