The National Financial Reporting Authority (NFRA) barred the auditor of Bartronics India for 10 Years, Imposes Fine of 5 Lakh Rupees on the ground of audit lapses.
Pursuant to the information received from the Ministry of Corporate Affairs (MCA) regarding irregularities observed by Financial Reporting Review Board (FRRB) of the Institute of Chartered Accountants of India (ICAI) in the Financial Statements of FY 2013-15 of Bartronics, the NFRA initiated an investigation under Section 132(4) of the Companies Act 2013 into the role of the statutory auditors, CA T. Raghavendra, for the audit of financial statements for FY 2013-15.
The Engagement Partner (EP) issued an unmodified audit opinion certifying that the financial statements presented a true and fair picture of the affairs of the company. In the Independent Auditor’s Report dated 20.05.2015, the EP has reported that standalone financial statements comply with the Accounting Standards specified under Section 133 of the Companies Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.
The Company has erroneously applied the provisions of Companies Act, 2013 while the Companies Act, 1956 was applicable for the reporting period.
The company had been in loss for the current reporting period FY 2013-15 and the previous reporting period FY 2012-13. Moreover, it is not clear from the financial statements whether the conditions for the recognition of deferred tax assets were met.
The EP should have exercised professional scepticism and challenged the management’s judgement of recognising the deferred tax assets. The EP has therefore failed to report non-compliance with the provisions of AS 22 regarding deferred tax assets as there is no comment in the Auditor’s report.
The waiver of principal amount of Rupees 9.74 crores is shown as Increase/(Decrease) in other reserves in the Cash Flow Statement. Since waiver of principal amount is a non-cash transaction, it should have been excluded from Cash Flow Statement as per para 40 of AS 3. As this has not been reported by EP, the failure to report and address the errors in cash flow statement stands established.
A Three Member Bench comprising Dr. Ajay Bhushan Prasad Pandey, Chairperson, Dr. Praveen Kumar Tiwari, Full-Time Member and Smita Jhingran, Full-Time Member observed that “In view of the fact that the EP has not only shown blatant disregard to the Standards on Auditing in conducting audit of a company that affects public interest, but has also shown scant regard to the legal process undertaken by NFRA under Section 132 (4) of the Companies Act, 2013 we take a serious view of his professional misconduct, which assumes further importance in light of the fact that he had long association with the company being its statutory auditor.”
The Bench imposed a monetary penalty of Rs 5,00,000 (Rupees Five Lakhs) on the EP, CA T. Raghavendra and debarred him, for ten 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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