9911796707
TMI Blog2024 (5) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... Accountants Act, 1949. Considering the professional misconduct by the Firm and the EP; and considering the nature of the violation, in exercise of powers under section 132(4)(c) of the Companies Act, 2013, it is ordered as follows: a) Imposition of a monetary penalty of Rupees Fifty Lakhs upon. M/s PCN Associates (FRN: 0160168), the Audit Firm and Rupees Thirty Lakhs upon CA Gopala Krishna Kandula (ICAI Membership No. 203605), the Engagement Partner. b) In addition, M/s PCN Associates and CA Gopala Krishna Kandula are debarred for a period of Two years and Ten years respectively 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. - Dr. Ajay Bhushan Prasad Pandey Chairperson, Dr. Praveen Kumar Tiwari Full Time Member And Smita Jhingran Full Time Member ORDER In the matter of M/s PCN Associates, and CA Gopala Krishna Kandula under Section 132(4) of the Companies Act, 2013. 1. This Order disposes of the Show Cause Notice ( SCN hereafter) no. NF-20012/1/2023/PCN dated 19 January 2024, issued to M/s PCN Associates (Audit Firm-FRN: 0160 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to avoid attending personal hearing. (refer para 20 of this Order). 5. This Order concludes that the failure of the Audit Firm and the EP to cooperate with NFRA is a professional misconduct under section 132(4) of the Companies Act 2013, i.e. failure to supply the information called for, failure to comply with the requirements asked for, failure to exercise due diligence and being grossly negligent in the conduct of professional duties. 6. Based on the proceedings under section 132 (4) of the Act and after giving multiple opportunities to the Firm and the EP to present requisite documents and to attend personal hearings, we find the Audit Firm and the EP guilty of professional misconduct in their failure to comply with the requirements of provisions of the Act, and Code of Ethics (2019) (the Code hereafter), and impose through this Order the following monetary penalties and sanctions, that will take effect after 30 days from the date of this Order: Imposition of a monetary penalty of Rupees Fifty Lakhs upon M/s PCN Associates (FRN: 0160168), the Audit Firm and Rupees Thirty Lakhs upon CA Gopala Krishna Kandula (ICAI Membership No. 203605), the Engagement Partner. In addition, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed audit firms as statutory auditor of 18 companies from FY 2013- 14 to FY 2022-23 was aimed at circumventing statutory rotation requirements. The Auditors associated with another firm under the same network may have been ineligible for appointment as statutory auditors. BGL did not recognize impairment losses in its investments in subsidiaries of Rs 126.52 crores, nor did it properly account for impairment of assets of Rs 1280.06 crores, resulting in non-compliance with accounting standards. BGL wrongly capitalized research and development expenditure, leading to an understatement of expenditure and overstatement of profit by Rs 504.16 crores, contravening accounting standards. BGL transferred assets to the Intangible Assets category annually rather than when recognition criteria were met, violating accounting standards. Despite non-compliance with accounting standards, statutory auditors issued unqualified audit reports on the financial statements that also omitted required disclosures under the Companies Act 2013. Consolidated Financial Statements of BGL do not give a true and fair view of the financial position and financial performance of the company. BGL's overseas subsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal hearing was rescheduled to 27.03.2024. The Auditors vide email dated 20.03.2024 requested for additional time of one month citing medical condition of the EP. In response, on 21.03.2024 NFRA sent them a Video Conference (VC) link and advised them to attend personal hearing on the rescheduled date i.e. 27.03.2024. On 26.03.2024, the EP sought four weeks time on medical ground, which was granted vide email dated 27.03.2024, however subject to production of an affidavit by the EP that he will not provide professional services during extended period. He submitted an affidavit on 05.04.2024 to NFRA, stating that he had not undertaken and was not going to undertake professional engagements involving financial reporting, auditing or any other professional services from 28.03.2024. These statements were found to be incorrect and he had in fact provided professional services between 28.03.2024 to 05.04.2024 and thereafter [On 24.04.2024, ICAI intimated that the EP generated UDIN during this period for providing professional services. Details are at para 20 of this Order.] As such he had filed a false affidavit with NFRA. The EP was also advised on 27.03.2024, to provide remaining i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s policies, practices and tools used for maintaining and archiving audit Files. b) On 30.06.2023, the Auditors sought 1 st extension of time of eight weeks for submitting the requisite information. NFRA allowed extension up to 31.07.2023 for submission of Audit Files and other information. c) On 31.07.2023, the Auditors sought 2 nd extension of time of one month for submitting the requisite information. NFRA allowed extension up to 15.08.2023 for submission of Audit Files and other information. d) In the meantime, on 01.08.2023, the Hon ble High Court of Telangana granted stay on the proceedings for FY 2017-18 and 2018-19. There was no stay on the proceedings for FY 2019-20. On 12.08.2023, the Auditors submitted that in view of the stay granted by the Hon ble High Court of Telangana for Financial years 2017-18 and 2018-19, they did not comply with NFRA letter for submission of the Audit Files and other information up to 31.07.2023. However, the Auditors kept silent in respect of submission of the Audit Files and other information for FY 2019-20, for which there was no stay from any court. e) On 18.08.2023, NFRA informed the Auditors that the last date for submission of the Audit F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to submit requisite documents including Audit Files and other information (as mentioned at para 15(a) above) relating to statutory audit of Brightcom Group Limited for the financial year 2020-21 to 2021-22 within 15 days time. m) On 13.09.2023, the Auditors sought Ist extension of Eight weeks for submitting the requisite information. The Auditors were allowed extension of time up to 30.09.2023. n) On 30.09.2023, the Auditors sought 2nd extension of 4 weeks for submission of required information. The Auditors were allowed extension of time up to 15.10.2023. 0) On 14.10.2023, the Auditors sought 3rd extension of 30 days for submission of required information. The Auditors were allowed extension of time up to 15.11.2023. p) On 15.11.2023, the Auditors sought 4th extension of 15 days for submission of the audit file and other information. The Auditors were allowed extension of time up to 30.11.2023. The Auditors were advised to submit the audit files and other information within the extended time period failing which it would be presumed that the Auditors had not maintained audit files in accordance with Standards on Auditing and SQC | and that the Auditors had nothing to say in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the Firm failed to provide the document containing such established policies and procedures either in the Audit Files or separately. 19. It is also noted that on five occasions the EP sought extensions of time inter alia on medical grounds and did not submit information to NFRA, but during those periods, he continued to provide professional services to his clients. The details of UDIN [Unique Document Identification Number (UDIN) is 18-Digits system generated unique number for every document certified/attested by full time Practicing Chartered Accountants. This is mandatory as per ICAI. For details please visit https://udin.icai.ore/pdf/FACs%200n%20UDIN%20(3rd%20Edition). Pdf ] generated during extension sought inter alia on medical grounds is given in table 1 below. Table 1: Details of UDIN generated by the EP during extension sought inter alia on medical grounds[As per ICAI email dated 28.03.2024 and 24.04.2024.] It can be observed from the above Table -1 that the EP did not submit requisite information to NFRA on the medical ground, however during the same period, he continued to perform his professional work even till midnight. It is further noted that the EP generated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es very difficult. The plea of ill health taken by the EP fails in light of the facts disclosed by the table above. The persistent failure of the Firm and the EP to submit requisite information leads us to conclude that the Firm and the EP are unwilling to cooperate with NFRA in discharging its statutory responsibility under section 132 (4) of the Act. This is professional misconduct on the part of the Auditors. The Auditors failure to provide the required documents and information has impeded the NFRA's ability to determine if the Auditors audit work was performed in accordance with Laws and Standards, and determine the violations committed by the Auditors. 22. We note that in the case of R.C. Dutta vs. Kailash C. Mishra [RC. Dutta vs. Kailash C. Mishra - Page 143 Vol.[X-1-21(6) of Disciplinary cases, the ICAI Council s decision dated 5 th January, 2005 and Judgement of High Court of dated 1st March, 2007] a Chartered Accountant was held guilty of professional misconduct under Clause (7) of Part I of Second Schedule and other misconduct under section 22 of the Chartered Accountants Act 1949, for his failure to appear before Tax Authorities. CA Gora Chand Mukherjee [Gora Chand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule of the Chartered Accountants Act 1949 as explained and proved in part C above. b) Failure to supply the information called for, and non-compliance with the requests of NFRA, as defined in clause 2 of Part-II of First Schedule of The Chartered Accountants Act, 1949 as explained and proved in part C above. E. Penalty and Sanctions 25. Itis the duty of an auditor to conduct the audit with professional skepticism and due diligence and report his opinion in an unbiased manner. Statutory audits provide useful information to the stakeholders and public, based on which they make their decisions on their investments or do transactions with a public interest entity [Public interest entity as defined in Rule 3 of NFRA Rules 2018]. The Brightcom Group Limited is one such entity, which is listed with stock exchanges in India and has significant public interest. 26. Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proven cases of professional misconduct are to be viewed, is evident from the fact that a minimum punishment is laid down by the law. 27. The Auditors professional misconduct is demonstra ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
