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)