9911796707
TMI Blog2024 (12) TMI 228X X X X Extracts X X X X X X X X Extracts X X X X ..... f Second Schedule to Chartered Accountants Act, 1949 which states a chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he- certifies or submits in his name, or in the name of his firm, a report of an examination of financial statements unless the examination of such statements and the related records has been made by him or by a partner or an employee in his firm or by another chartered accountant in practice , b) Failure to exercise due diligence and being grossly negligent in the conduct of professional duties. c) Failure to obtain sufficient information which is necessary for the expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion. Thus, it is found that CA Krishna Bihari Chaturvedi committed professional misconduct, as defined in the respective clauses of the CAs Act, the meaning of which is conceived under Section 132 (4) of the Companies Act as amounting to professional misconduct. Penalties 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pursuant to an Audit Quality Review (AQR) of the statutory audit of DHFL for FY 2017-18, conducted by Chaturvedi Shah (CAS), a Mumbai-based Chartered Accountant Firm. During the review, NFRA also noticed that 33 Engagement Partners (EP) or branch auditors had signed the Independent Branch Auditors' Report for nearly 250 branches. The Statutory Auditor of the Company viz, CAS had referred to these so-called Branch Audit reports in their report to the members of the Company. NFRA investigated these EPs responsible for Branch Audits under section 132 (4) of the Companies Act, 2013 (the Act), including CA Krishna Bihari Chaturvedi, who signed the audit reports of five of the 250 branches of DHFL. 2. NFRA's investigations revealed that the appointment of none of the 33 branch auditors was approved at the Annual General Meeting (AGM) of DHFL, as required by the Act. The Audit Firm accepted the appointment and CA Krishna Bihari Chaturvedi issued an Independent Branch Auditor's Report portraying himself as the Branch Statutory Auditor. By doing so, his Audit Firm not only accepted a legally invalid appointment but also violated the provisions of the Chartered Accountants Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Ethics, the violation of which constitutes professional misconduct, and is punishable with penalty prescribed under Section 132 (4) (c) of the Act. 7. Following media reports on the alleged siphoning of public money of around 31,000 crore and the Enforcement Directorate's reported action in April 2020 on an alleged banking fraud of about 3,700 crore by the promoter/ directors of DHFL, NFRA suo-motu initiated an Audit Quality Review (AQR) to probe into the role of the Statutory Auditors of DHFL for the FY 2017-18, the year in which the alleged fraud was primarily stated to have occurred. While examining the Audit Files of the statutory audit carried out by CAS, a Mumbai-based CA firm, certain prima facie violations were observed relating to the appointment of Branch Auditors and the conduct of branch audits of DHFL, which were referred to by the statutory auditor CAS. Accordingly, NFRA suo motu called for the audit files from the audit firms which had issued the Independent Branch Auditors' Report for nearly 250 branches, under Section 132(4) of the Act, including from CA Krishna Bihari Chaturvedi, to whom this Order relates and who issued the audit report for the five ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sional misconduct in respect of the performance as the Statutory Auditor of five branches of DHFL for the FY 2017-18. He was charged with professional misconduct on account of: a. Failure to exercise due diligence and being grossly negligent in the conduct of professional duties, b. Failure to obtain sufficient information which is necessary for the expression of an opinion, or its exceptions are sufficiently material to negate the expression of an opinion, and 13. The SCN was duly sent to CA Krishna Bihari Chaturvedi on 07.12.2022 to his email, which was used for regular correspondence. A copy of the Audit File was also appended to the SCN. A hard copy of the SCN and a DVD containing the soft copy of appendices (including the Audit File) were also sent to his address. The correctness of the address was also confirmed by him over the phone on 19.12.2022. However, he did not accept the speed post which was returned undelivered with the remarks by the postal department that Recipient lives there. House was found locked and Addressee left without instructions . However, vide email dated 22.12.2022, he informed us about the non-receipt of the physical copy of the SCN and requested a ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N by 01.02.2024. Complete SCN and appendices were delivered to him on 17.01.2024 via email. However, the physical copy of SCN sent to him via speed post returned undelivered from the address mentioned in his affidavit, on which we had earlier communicated with him. Since no response was received, the last date for the reply to Supplementary SCN was suo motu extended to 11.02.2024. On 12.02.2024 he requested to re-post the Supplementary SCN and give further time extension. The supplementary SCN was sent again and the last date was extended to 29.02.2024. However, no response was received from him. The last date to submit a reply was again suo-motu extended to 29.03.2024. Despite repeated extensions and even after giving multiple opportunities to present his case, he did not submit any response to the Supplementary SCN. Therefore, we examined the audit file, audit reports, reply to SCN dated 07.12.2022, his communications and submissions during the personal hearing and accordingly proceed to issue this Order based on evidence on record. Only the violations/actions/omissions proved to result in one or more professional misconducts as per the articles of charges in the SCNs are covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther Clause 2 of Part 1 of the Second Schedule to Chartered Accountants Act, 1949 or the requirements of SA 220 Para 7, 9, 10, 15 and 17 of SA 220, Quality Control for an Audit of Financial Statements , SA 230, SA 500, SA700 Para 6(a), 10 and 11 of SA 700, Forming an Opinion and Reporting on Financial Statements , and the ICAI Code of Ethics 2009. The evidence of non-compliance is as follows: a. There is no evidence in the Audit File or explanations to demonstrate if any assessment of the accounts of the branch, as required by SA 700, was performed by him or under his supervision, before arriving at an audit opinion. This conclusion follows since the audit documentation does not record (a) the nature, timing and extent of audit procedures performed, (b) the results thereof, (c) the audit evidence obtained, (d) conclusions reached, (e) who performed the audit work, (f) who reviewed the audit work and extent of such review Para 5, 8 and 9 of SA 230, Audit Documentation and Para 4 and 6 of SA 500, Audit Evidence . The details of the engagement team, the duration of the audit and the roles and responsibilities of the partners involved are absent in the Audit File (SA 230). b. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of the Chartered Accountants Act, 1949. (JDI, Bombay vs. B.K. Kurhade - Page 585 of Vol. VIII - 1 - 21(6) of Disciplinary Cases- Judgement dated 12th August 2004). 23. CA Krishna Bihari Chaturvedi was also charged with non-compliance with other SAs. There is no evidence in the audit file regarding compliance with any of the SAs. In the absence of evidence, the charges regarding non-compliance with the following SAs stand proved: a) Para 6, 7, 8, 9 10 of SA 300 since he failed to establish an overall audit strategy and development of audit plan etc. in accordance with SA 300. b) Para 10, 11 14 of SA 320 for determining materiality, performance materiality and documentation thereof. c) 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. d) 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. e) Para 6 of SA 520 relating to the design and performance of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turvedi committed professional misconduct, as defined in the respective clauses of the CAs Act, the meaning of which is conceived under Section 132 (4) of the Companies Act as amounting to professional misconduct. E. PENALTY AND SANCTIONS 25. 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. 26. In this case, the information contained in the Financial Statement, includes material information from the Branches of the Company, where a substantial part of the lending activities was carried out. 27. A Branch Auditor is duty-bound to examine and ascertain the integrity of the underlying information forming the Financial Statements of such entities As defined in Rule 3 of NFRA Rules 2018 in the larger public interest. 28. In this case, while all the documents and reports described the engagement as a statutory branch audit and the audit was, in substance as well as in form, a statutory branch audit, none of the legal requirements regarding the appointment of the statutory audit was complied with. More importantly, CA Krishna Bihari Chaturvedi issued the audit repo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
