The National Financial Reporting Authority (NFRA) has taken strict action against 18 auditors linked to a prominent housing finance company, DHFL, following deficiencies in their audit practices.
Four of these auditors have been subjected to a 6 months debarment, while the remaining 14 have been debarred for 1 year. In addition to the debarring, each auditor has been fined Rs. 1 lakh, totaling Rs. 18 lakhs.
The backdrop to this action involves media reports alleging the misappropriation of approximately ₹31,000 crore in public funds and reported Enforcement Directorate actions in April 2020 regarding an alleged banking fraud of about ₹3,700 crore involving DHFL’s promoters and directors. In response, NFRA proactively initiated an Audit Quality Review (AQR) to examine the involvement of DHFL’s Statutory Auditors for the fiscal year 2017-18, the year in which the alleged fraud primarily occurred.
During the review, NFRA identified 33 Engagement Partners (EP) or branch auditors who had signed the “Independent Branch Auditors’ Report” for roughly 250 branches without proper approval at the company’s annual general meeting.
The key audit lapses flagged by NFRA encompassed accepting audit engagements without valid authorization and failing to comply with ethical requirements. Additionally, auditors were found to have issued audit reports in violation of the law and failed to adhere to Standards on Auditing (SAs). NFRA also listed instances of professional misconduct committed by the auditors, leading to separate penalties and debarments for each of the 18 auditors.
In an upcoming development, on October 13, the Supreme Court is set to review an appeal filed by NFRA, India’s audit watchdog. This appeal comes in response to a Telangana High Court decision that temporarily halted NFRA’s proceedings against an audit firm. The High Court’s decision was based on its initial assessment that NFRA might lack the authority to oversee past audits. The Supreme Court will scrutinize NFRA’s challenge to the Telangana High Court’s ruling, which questions NFRA’s jurisdiction regarding retrospective audit matters.
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