Powers and duties of auditors and auditing
standards--CA failed to conduct audit in accordance with Ind-AS or
SAs--Non-exercise of due diligence and negligent in conduct of professional
duties--Imposition of penalty under section 132(4)(c)
Companies Act, 2013 Sections
143 & 132
CA failed to conduct audit in accordance with SAs and
falsely reported in his audit report that audit was conducted as per SAs, the
CA did not exercise due diligence or is grossly negligent in the conduct of his
professional duties, therefore, penalty was imposed upon him as per section
132.
Facts: NFRA received
information from SEBI in case of VWL, wherein it was stated that the company
did not recognize the interest expense on its borrowings from banks in the
Statement of Profit and Loss for financial year 2019-20, which resulted in
overstatement of profits by the company. Therefore, the NFRA issued show cause
notice under rule 11(5) to CA of the company for professional misconduct.
Held: The NFRA found
that the CA has no understanding of Ind-AS or SAs (Standards on Accountings),
which is fundamental for any auditor specially those auditing public interest
entity. The CA failed to conduct audit in accordance with SAs but falsely
reported in his audit report that the audit was conducted as per SAs. The CA
does not exercise due diligence or is grossly negligent in the conduct of his
professional duties. Thus, as per section 132(4)(c) penalty of Rs. 3 lakhs was
imposed upon the CA and he was debarred for three years from being appointed as
an auditor/internal auditor/undertaking any audit in respect of financial
statements or internal audit of functions and activities of any company or body
corporate.
Decision: Against the
noticee
Case: Som
Prakash Aggarwal, In re 2022 TaxPub(CL) 2745 (NFRA)