NFRA slaps fines on auditors for RCap auditing lapses in 2018-19
NEW DELHI: The National Financial Reporting Authority (NFRA) has slapped penalties totalling Rs 4.5 crore on an audit firm and two auditors for professional misconduct for alleged auditing lapses of Reliance Capital’s financials in 2018-19.
A fine of Rs 3 crore has been imposed on Pathak H D & Associates, Rs 1 crore on Parimal Kumar Jha and Rs 50 lakh on Vishal D Shah. Besides, Jha and Shah have been debarred from taking up audit work for 10 years and 5 years, respectively, according to an order.
Jha was the Engagement Partner (EP) and Shah was the Engagement Quality Control Review (EQCR) Partner for the statutory audit of Reliance Capital for 2018-19 fiscal.
For 2018-19, the company was jointly audited by Price
Waterhouse & Co LLP (PW) and Pathak HD & Associates. PW reported suspected fraud regarding loans and investments amounting to approximately Rs 12,571 crore to some group companies.
In the order dated April 12, the NFRA said that despite the reporting of suspected fraud and the resignation by the other joint auditor (PW), the auditors did not perform adequate procedures as required by the Standards of Auditing (SA).
“The material misstatements in the financial statements due to inadequate provision, unjustified valuation of loans and irrational business practices were concurred by the auditors in disregard of their responsibilities under the (Companies) Act and SAs. The auditors also demonstrated a lack of professionalism by rationalising the actions of the company and ignoring the fundamentals of accounting and auditing,” the order said.
As per the consolidated financial statements for 201819, Reliance Capital had loans from banks of around Rs 12,000 crore and other external borrowings of around Rs 32,000 crore. It used the loans and borrowing to extend loans and investments to other group companies.
“EP and EQCR partners are debarred for 10 years and 5 years respectively 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,” the order said.