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of <h1>NFRA upholds jurisdiction over pre-2018 misconduct cases, penalizes chartered accountant Rs. 5 lakh with five-year audit ban</h1> <h3>In the matter of DHFL against CA Amit Vinay Chaturvedi</h3> In the matter of DHFL against CA Amit Vinay Chaturvedi - TMI Issues Involved:1. Jurisdiction of NFRA.2. Major lapses in the audit.3. Articles of charges of professional misconduct.4. Sanctions and penalties.Summary:1. Jurisdiction of NFRA:The EQCR Partner challenged the jurisdiction of NFRA, arguing that NFRA lacked authority to investigate professional misconduct for audits conducted before NFRA's establishment. The Hon'ble Bombay High Court and the Hon'ble Supreme Court upheld NFRA's jurisdiction. NFRA determined that it had the requisite jurisdiction under Section 132(4) of the Companies Act, 2013, to investigate professional misconduct, including cases before its establishment, as the law did not create new obligations but merely shifted the forum for investigation.2. Major Lapses in the Audit:The EQCR Partner, CA Amit Vinay Chaturvedi, was found to have failed in several key areas:- Audit Documentation: Failed to evidence objective evaluation of significant judgments made by the Engagement Partner (EP).- Discussion with EP: No evidence of discussions on significant matters during the audit.- Evaluation of EP's Work: Failed to question EP's compliance with Standards on Auditing (SAS) and the Companies Act.- False Reporting: Failed to report material misstatements, non-compliance with NHB Directions, and deficiencies in internal financial controls.- Going Concern Assumption: Did not assess the entity's ability to continue as a going concern.- Related Party Transactions: Failed to verify these transactions adequately.3. Articles of Charges of Professional Misconduct:The EQCR Partner was charged with:- Failure to Exercise Due Diligence: Gross negligence in professional duties.- Insufficient Information for Opinion: Did not obtain necessary information for expressing an opinion.- Failure to Report Material Departures: Did not highlight departures from generally accepted audit procedures.These charges were substantiated based on the evidence in the audit file and the EQCR Partner's failure to adhere to SAS and applicable regulations.4. Sanctions and Penalties:Considering the seriousness of the violations:- Monetary Penalty: A fine of Rupees Five Lakh was imposed.- Debarment: CA Amit Vinay Chaturvedi was debarred for five years from being appointed as an auditor or internal auditor or from undertaking any audit of financial statements or internal audit of any company or body corporate.These penalties will take effect 30 days from the issuance of the order.Conclusion:The NFRA found CA Amit Vinay Chaturvedi guilty of professional misconduct for failing to meet the standards required for an Engagement Quality Control Review, leading to an inappropriate audit report for DHFL for FY 2017-18. The penalties imposed reflect the gravity of the lapses and aim to uphold the integrity of the auditing profession.
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