News Details- (Get Professional Updates on Whatsapp, Msg on 8285393786) More News

NFRA imposes fine, debars auditors for 3 yrs for professional misconduct

Posted Date : 24-Apr-2023 , 07:47:20 am | Posted By CASANSAAR print Print
The National Financial Reporting Authority (NFRA) has imposed a fine and a three-year ban on two auditors for professional misconduct and other lapses in connection with the audit of SRS Ltd in 2017-18. In two separate orders, NFRA slapped a fine of Rs 3 lakh each on auditors — Pankaj Kumar and Naresh Kumar, and debarred them for three years from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate during the ban period.

The order came after NFRA received a letter from the Serious Fraud Investigation Office (SFIO) which had investigated the affairs of SRS Ltd and the group companies.An investigation by SFIO had revealed that the company and its group companies had presented financial statements containing false statements of debtors and indulged in the malpractice of round-tripping and layering of transactions resulting in inflated purchases and sales.

The NFRA initiated action under the Companies Act for investigating professional or other misconduct of the statutory auditors of SRS Ltd. SRS Ltd, is a listed entity and one of the companies of SRS Group. It went under the Corporate Insolvency Resolution Process (CIRP) by the order of the NCLT in August 2018. The audit firm SVP & Associates, its engagement partner (EP) Pankaj Kumar and audit firm Oswal Sunil & Company, its EP Naresh Kumar were the joint statutory auditors of SRS Ltd for the FY 2017-18 and they were responsible for audit of 39.71 per cent and 60.29 per cent, respectively of the total assets of the firm.

Both the audit firms and EPs were also the joint auditors of SRS for FY 2016-17 and had issued a qualified opinion. They were also engaged in the limited review of quarterly financial results as per Sebi’s disclosure norms and had consistently issued qualified opinions on the financial results for FY 2017-18. During the course of audit, the regulator found that both Pankaj Kumar and Naresh Kumar ignored several indicators of potential fraudulent transactions. They were privy to, such unusual high provision of Rs 1,295.01 crore for bad/doubtful debts in respect of trade receivables (99.85 per cent of the total trade receivables), and a substantial decline of Rs 207.74 crore in the carrying amount of the inventories, it said. Also, they failed to review these abnormal events for reporting, while choosing to report only about Rs 10 crore of fraudulent transactions, which had already been reported by the firm to stock exchanges.

The company had a net loss of Rs 1,460.87 crore in the FY2017-18 and accumulated losses of Rs 1,384.69 crore as on March 2018.Further, it had a negative net worth of Rs 977.40 crore and defaults in repayment of borrowings from banks amounting to Rs 1,001.28 crore and many of its business divisions were discontinued. “We find that this is a serious lapse of the auditors, as an audit opinion expressed in the audit report holds a very high value being an assurance to the stakeholders about the true and fair position of the financial statements,” NFRA said.

Further, both Naresh Kumar and Pankaj Kumar failed to determine the appointment of the EQCR (Engagement Quality Control Review) in the audit of a listed entity, they had seriously compromised the quality of the audit process and its outcome.By submitting misleading and false information on the appointment of an EQCR to the regulator, they breached the code of ethics and showed gross negligence in performing their duties in violation of the norms, it said. “They misled the regulator by falsifying documents and despite being qualified professionals, they had not adhered to the standards and thus, not discharged their duties cast upon them as an ethical auditor entrusted with the critical role of a watchdog in public interest,” NFRA said in the order.

Category : Income Tax | Comments : 0 | Hits : 976

Search News
News By Categories More Categories