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2023 (8) TMI 322 - NFRA - Companies LawProfessional Misconduct - Acceptance of audit appointment without complying with mandatory legal and ethical requirements and issuing audit report without a valid appointment as per the Act - Failure to comply with Standards on Auditing (SAs) - Non-Compliance with SA 210 Agreeing the Terms of Audit Engagements - Non-Compliance with SA 230 Audit Documentation - Non-Compliance with SA 700, Forming an Opinion and Reporting on Financial Statements - Non-Compliance with other SAs - Penalty and sanctions. Acceptance of audit appointment without complying with mandatory legal and ethical requirements and issuing audit report without a valid appointment as per the Act - HELD THAT - In the absence of a valid appointment order, EP s acceptance vide letter dated 09.09.2017 of the appointment as statutory auditor of the branches and issuance of the Independent Branch Auditor s Report for the eight Branches of DHFL, including the report required under CARO 2006 describing the engagement as Branch Statutory Audit shows the absence of professional skepticism and lack of due diligence on his part - The EP s position, (shifting the onus on the Company), cannot be accepted as the EP was required to exercise due diligence under the SA 200 and adhere to the specific provisions of the CAs Act under Section 22 read with Clause 9 of the First Schedule. The non-compliance is thus professional misconduct in terms of section 132(4)(c) of the Companies Act 2013. The said lack of due diligence and gross negligence in accepting an invalid appointment is also professional misconduct as per the Chartered Accountants Act, 1949, the meaning of which is conceived in Section 132(4)(c) of the Companies Act 2013. Non-Compliance with SA 210 Agreeing the Terms of Audit Engagements - HELD THAT - EP s negligence of the provisions of SA 210 has resulted in accepting an illegal and invalid appointment and issuing a report that is not appropriate to the situation. Thus, apart from the non-compliance with SA 210, this shows absence of professional scepticism and professional judgment in understanding the objective and scope of the audit, thereby violating SA 200 also. Therefore, charges stand proven. Non-Compliance with SA 230 Audit Documentation - HELD THAT - The lack of sufficient documentation in an audit is not a mere technical and procedural formality but is a serious issue which strikes at the very root of the audit and may defeat the very purpose of the audit itself. Lack of sufficient documentation has been viewed seriously by national and international regulators as well - In the absence of proof documented in the audit file, the inevitable conclusion is that the requirements of the SAs are not met. The facts are evidence that the EP did not follow the requirements of SA 230 and the audit documentation does not give evidence of the nature, timing and extent of audit procedures performed, results of those audit procedures and conclusions reached during the audit. Hence the charges regarding non-compliance with SA 230 stand established. Non-Compliance with SA 700, Forming an Opinion and Reporting on Financial Statements - HELD THAT - In the absence of any documented conclusions, determination of materiality and assessment of the risk of misstatements and the test of controls and based on the contradictory evidence available, we conclude that the unmodified opinion issued by EP is without any valid basis and therefore the EP did not comply with the provisions of SA 700. The Charges stand established - such lapses relating to the verification of documents during the audit are viewed seriously by audit regulators. A Chartered Accountant, in the audit of a Bank branch, did not verify the securities for debts and was held guilty of professional misconduct of absence of due diligence and gross negligence. Non-Compliance with other SAs - HELD THAT - Para 6,7, 8, 9 10 of SA 300 as the EP failed in establishing an overall audit strategy and development of audit plan etc. in accordance with SA 300 - para 5, 6 11 of SA 315 and para 1, 5 6 of SA 330 as the audit file lacks any documentation regarding the performance of risk assessment procedures for material misstatements at the financial statement level and assertion level and response to such risks etc. - para 10, 11 14 of SA 320 for determining materiality, performance materiality and documentation thereof - para 5, 6, 8, 14 15 of SA 450 absent the evaluation of identified misstatements and uncorrected misstatements - para 6 9 of SA 500 in not designing and performing audit procedures to obtain sufficient appropriate audit evidence and not evaluate the reliability of information produced by the company - para 5, 6 and 8 of SA 510 relating to the performance of necessary audit procedures and obtaining sufficient and appropriate audit evidence to ascertain the accuracy of Opening Balances and the accounting policies reflected in the Opening Balances - para 6 of SA 520 relating to design and performance of analytical procedures - para 4, 6,7, 8 9 of SA 530 relating to the determination of sample design, sample size and required audit procedures - para 8,9 10 of SA 580 regarding obtaining written representations from the management about their responsibilities. Penalty and sanctions - HELD THAT - Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The law lays down a minimum punishment for such misconduct. Considering the fact that professional misconducts have been proved and considering the nature of violations and principles of proportionality and keeping in mind the deterrence, proportionality, signalling value of the sanctions and time required for improvement in knowledge gaps we, in the exercise of powers under Section 132(4)(c) of the Companies Act, 2013, proceed to order the following sanctions i. Imposition of a monetary penalty of Rs 100,000 (One Lakh) upon CA Akash Goel; ii. CA Akash Goel is debarred for one year 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.
Issues Involved:
1. Acceptance of audit appointment without complying with mandatory legal and ethical requirements. 2. Failure to comply with Standards on Auditing (SAs). 3. Professional misconduct by the Engagement Partner (EP), CA Akash Goel. 4. Penalty and sanctions imposed on CA Akash Goel. Summary: I. Acceptance of Audit Appointment Without Complying with Mandatory Legal and Ethical Requirements: CA Akash Goel accepted the branch audit appointment for Dewan Housing Finance Limited (DHFL) without verifying the legal validity of his appointment. The appointment was issued by an "Authorized Signatory" without the approval of the Board and shareholders, violating Section 139 of the Companies Act, 2013. The EP admitted during the oral hearing that the requirements of both the Companies Act, 2013 and the Chartered Accountants Act, 1949 were not met. This non-compliance constitutes professional misconduct under Section 132(4)(c) of the Companies Act, 2013. II. Failure to Comply with Standards on Auditing (SAs):CA Akash Goel failed to comply with several Standards on Auditing (SAs) during the conduct of the audit. Specific violations include: - Non-Compliance with SA 210 "Agreeing the Terms of Audit Engagements": The EP did not issue an audit engagement letter containing all required details as per SA 210, resulting in an invalid appointment and a flawed understanding of the audit scope.- Non-Compliance with SA 230 "Audit Documentation": The EP's audit documentation did not provide evidence of the nature, timing, and extent of audit procedures performed, results obtained, and conclusions reached. The absence of sufficient documentation violates SA 230. - Non-Compliance with SA 700 "Forming an Opinion and Reporting on Financial Statements": The EP issued an unmodified opinion despite not receiving around 50% of the material requisitioned for audit, violating SA 700. - Non-Compliance with Other SAs: The EP failed to comply with several other SAs, including SA 300, SA 315, SA 320, SA 450, SA 500, SA 510, SA 520, SA 530, and SA 580, as detailed in the judgment. III. Professional Misconduct by the Engagement Partner (EP), CA Akash Goel: CA Akash Goel was found guilty of professional misconduct due to his failure to ascertain the validity of his appointment, lack of due diligence, gross negligence, and non-compliance with SAs. The specific charges established include: - Failure to ascertain compliance with Section 139 of the Companies Act.- Gross negligence and lack of due diligence in professional duties. - Failure to obtain sufficient information necessary for expressing an opinion. - Failure to highlight material departures from generally accepted audit procedures. IV. Penalty and Sanctions Imposed on CA Akash Goel: Considering the professional misconduct and the nature of violations, the following sanctions were imposed on CA Akash Goel under Section 132(4)(c) of the Companies Act, 2013: - Imposition of a monetary penalty of Rs 100,000 (One Lakh).- Debarment for one year from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of any company or body corporate. This order will become effective after 30 days from the date of issue of this order.
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