NFRA Slaps Rs 5 lakh Penalty on Audit Firm for lapses in Vikas WSP Audit Case
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The National Financial Reporting Authority (NFRA) has slapped a penalty of Rs 5 lakh on an audit firm for professional misconduct and other lapses in the audit of Vikas WSP Ltd for FY20. Vikas WSP Ltd is a BSE- and NSE-listed company.
The order came after NFRA received information from the Securities Exchange Board of India (Sebi), that Vikas WSP Ltd did not recognise in its FY20 financial statements the interest expense on its borrowings from banks, which resulted in overstatement of profits by the company.
Thereafter, NFRA initiated action against the audit firm, for professional or other misconduct in the statutory audit of Vikas WSP Ltd (VWL) for FY20.
The regulator noted that the financial statements of VWL were materially misstated due to partial recognition of interest cost on borrowings classified as Non-Performing Assets (NPAs) by banks in FY20, resulting in overstatement of profits.
"The audit firm that was primarily responsible for establishing and maintaining a system of quality control that the firm and its personnel comply with professional standards and regulatory and legal requirements.
"Further, the reports issued by the firm or engagement partners are appropriate in the circumstances, failed to properly implement its quality control policies and procedures," NFRA said in the order on Tuesday. Accordingly, the regulator penalised the audit firm for the audit lapses.
"The audit firm failed to meet relevant requirements of the Companies Act, Standards on Quality Control (SQC 12), standards on auditing in several significant respects, and was grossly negligent and failed to apply professional ske.
The order came after NFRA received information from the Securities Exchange Board of India (Sebi), that Vikas WSP Ltd did not recognise in its FY20 financial statements the interest expense on its borrowings from banks, which resulted in overstatement of profits by the company.
Thereafter, NFRA initiated action against the audit firm, for professional or other misconduct in the statutory audit of Vikas WSP Ltd (VWL) for FY20.
The regulator noted that the financial statements of VWL were materially misstated due to partial recognition of interest cost on borrowings classified as Non-Performing Assets (NPAs) by banks in FY20, resulting in overstatement of profits.
"The audit firm that was primarily responsible for establishing and maintaining a system of quality control that the firm and its personnel comply with professional standards and regulatory and legal requirements.
"Further, the reports issued by the firm or engagement partners are appropriate in the circumstances, failed to properly implement its quality control policies and procedures," NFRA said in the order on Tuesday. Accordingly, the regulator penalised the audit firm for the audit lapses.
"The audit firm failed to meet relevant requirements of the Companies Act, Standards on Quality Control (SQC 12), standards on auditing in several significant respects, and was grossly negligent and failed to apply professional ske.
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