Reliance Capital case: NFRA debars two CAs to be appointed as Auditors, also imposed fine

Alleging misconduct, the National Financial Reporting Authority (NFRA) has debarred two Chartered Accountants (CAs) between 5-10 years. Also, these two CAs and one audit firm have been fined up to ₹3 crore.

The matter is related to a financial transaction with Reliance Capital.

“Imposition of a monetary penalty of ₹3 crore on the Audit Firm M/s Pathak, H.D. & Associates,” NAFRA said in its order dated, April 12. It also imposed monetary penalties of ₹1 crore and ₹50 Lakh respectively on EP (Engagement Partner), CA Parimal Kumar Jha and EQCR (Engagement Quality Control Review Partner), CA Vishal D Shah.

“In addition, EP and EQCR partners are debarred for 10 and five 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, while it would become effective after 30 days from the date of issuance.

Talking about the case, the order noted that in FY2018-19, RCL had loans from banks of around ₹12,000 crore and other external borrowings of around ₹32,000 crore, consisting of debentures, commercial papers and pass-through certificates. RCL was a Core Investment Company (CIC) investing primarily in its group companies.

Given the high degree of public interest in this listed entity, it was the duty of the Auditors to conduct the audit with the highest level of professional skepticism and due diligence and report their opinion in an unbiased manner. Despite the resignation of the joint auditor and a reporting of suspected fraud, PHD, EP and EQCR Partner failed to conduct the audit as per standards on auditing. 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 Act and Sas, the bench mentioned.

“The Auditors also demonstrated recklessness and unprofessionalism by rationalising the actions of the Company, inappropriately evaluating the work of the resigned Auditor and ignoring the fundamentals of accounting and auditing. Such actions of the Auditors necessitate stricter sanctions and penalties taking into account the letter and spirit of the law”, the order said, while adding that professional misconduct has been proved and accordingly fine and debarment has been imposed.



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