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2023 (5) TMI 1321 - NATIONAL FINANCIAL REPORTING AUTHORITYProfessional misconduct by CA - Continuation of Audit engagement disregarding Independence requirements - Failure to understand nature or business of Giri Vidhyuth (India) Limited (GVIL) - Lapses in audit relating to fraudulent diversion of funds worth Rs. 520 crores, understatement of related party loan by Rs. 350 crores and evergreening of loans - Lapses in evaluation of going concern assumption - Lapses In audit relating to Statement of Cash Flows - Failure to ensure compliance with section 134(1) of the Act - Failure to comply with SA 700-Forming an Opinion and Reporting on Financial Statements - Failure to comply with SA 230-Audit Documentations, SA 260, Communication with Those Charged With Governance & SA 265-Communicating deficiencies in Internal Control to Those Charged With Governance and Management - Failure to comply with SA 300-Planning an audit of Financial Statements - Failure to comply with SA 720-The Auditor's Responsibilities Relating to Other Information - sanctions and penalties. HELD THAT:- The Auditors have committed Professional Misconduct as defined under Section 132(4) of the Companies Act 2013 in terms of section 22 of the Chartered Accountants Act 1949 (CA Act) as amended from time to time, and as detailed below: a) The Auditors committed professional misconduct as defined by clause 5 of Part 1 of the Second Schedule of the CA Act, which states that an auditor is guilty of professional misconduct when he "fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity", b) The Auditors committed professional misconduct as defined by clause 6 of Part 1 of the Second Schedule of the CA Act, which states that an auditor is guilty of professional misconduct when he "fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity". c) The Auditors committed professional misconduct as defined by clause 7 of Part 1 of the Second Schedule of the CA Act, which states that an auditor is guilty of professional misconduct when he "does not exercise due diligence or is grossly negligent in the conduct of his professional duties". d) The Auditors committed professional misconduct as defined by clause 8 of Part 1 of the Second Schedule of the CA Act, which states that an auditor is guilty of professional misconduct when he "fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion". e) The Auditors committed professional misconduct as defined by clause 9 of Part 1 of the Second Schedule of the CA Act, which stales that an auditor is guilty of professional misconduct when he "fails to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances". In addition to above, the Audit Firm has committed Professional Misconduct as defined Section 132(4) of the Act as failure to exercise due diligence and being grossly negligent in the conduct of professional duties, as the Audit Firm failed to exercise due diligence and was grossly negligent in the conduct of professional duties, thus, violated SQC 1. Thus, all the charges of professional misconduct in the SCN (Except charges relating to noncompliance with SA 320, which has been dropped) stand proved based on the evidence in the Audit File, the Audit Report dated 21.11.2020 issued on behalf of the Firm, the submissions made by the Auditor and the Financial Statements of GVIL for the FY 2019-20. Penalties and sanctions - HELD THAT:- Considering the proved professional misconduct and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is hereby ordered: a) Imposition of a monetary penalty of Rs. One Crore upon M/s. Sundaresha & Associates. In addition, M/s. Sundaresha & Associates is debarred for a period of 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. This debarment period will start after completion of two years debarment period imposed in case of Tanglin Development Limited for FY 2018-19 vide NFRA order dated 26.04.2023. b) Imposition of a monetary penalty of Rs. Five Lakhs upon CA C. Ramesh-In addition, CA C. Ramesh is debarred for a period of Five 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. c) Imposition of a monetary penalty of Rs. Five Lakhs upon CA Chaitanya G. Deshpande. In addition, CA Chaitanya G. Deshpande is debarred for a period of Five 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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