Engagement quality review failures in listed-company audits can amount to professional misconduct under auditing and quality control standards.

An engagement quality control reviewer in a listed-company statutory audit was assessed against section 132(4) of the Companies Act, 2013, the NFRA Rules, 2018, section 22 of the Chartered Accountants Act, 1949, the Second Schedule, and SQC 1 with Standards on Auditing 220, 230 and 320. The analysis found that the reviewer lacked the required experience for a listed-entity engagement, did not conduct an objective review of significant judgments, relied mainly on checklist-based review, and maintained inadequate documentation. It also found deficiencies in timing and review of going concern, deferred tax assets, independence and audit planning, resulting in proved professional misconduct under clauses 7, 8 and 9 of Part I of the Second Schedule and a monetary penalty.

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Issues: Whether the engagement quality control reviewer, in the statutory audit of a listed company, failed to comply with the requirements of the auditing and quality control standards so as to render her guilty of professional misconduct and liable to monetary penalty.

Analysis: The order applies the framework of section 132(4) of the Companies Act, 2013, the NFRA Rules, 2018, section 22 of the Chartered Accountants Act, 1949 and the Second Schedule thereto, together with SQC 1 and Standards on Auditing 220, 230 and 320. It holds that the reviewer accepted appointment without the necessary experience for a listed-entity engagement and did not perform an objective review of the engagement team's significant judgments. The review was found to be largely checklist-based, unsupported by meaningful documentation, not carried out at appropriate stages, and insufficient in relation to key areas such as going concern, deferred tax assets, independence and audit planning. On this basis, the charged misconduct under clauses 7, 8 and 9 of Part I of the Second Schedule was found proved.

Conclusion: The charges of professional misconduct were upheld and a monetary penalty of Rs. 1 lakh was imposed on the engagement quality control reviewer.

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