TaxTMI 
TaxTMI 
2023 (7) TMI 1245
X X X X Extracts X X X X
X X X X Extracts X X X X
....r ('FY' hereafter) 2020-21. 2. This Order is divided into the following sections: A. Executive Summary B. Introduction & Background C. Major Lapses in the Audit D. Other Lapses in the Audit E. Lapses by the Audit Firm F. Findings on Articles of Charges of Professional Misconduct by the Auditors G. Findings on Additional Articles of Charges of Professional Misconduct by the Audit Firm H. Penalty & Sanctions A. EXECUTIVE SUMMARY 3. National Financial Reporting Authority (NFRA) is India's independent regulator in respect of matters relating to accounting and auditing of prescribed class^1 of entities which can be broadly described as 'Public Interest Entities' (PIEs). 4. NERA initiated action under Section 132(4) of the Companies Act, 2013 (the Act) for investigating into professional or other misconduct of the Statutory Auditor of MIIL, a company listed on BSE and NSE, following information received from Securities and Exchange Board of India (SEBI) vide letter dated 23.06.2022 regarding financial irregularities committed by MIIT.. 5. MIIL's shareholding pattern in FY 2020-21 reflected substantial ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....loss of at least Rs. 4.33 crores (para 58 and 60). 11. The Auditors 'Qualified' opinion on Consolidated Financial Statements (CFS) that the Financial Statements reflect 'true and fair view' except for the effect of non-consolidation of a subsidiary, Merino Shelters Private Limited (MSPL) is erroneous, as the impact of the grounds for qualification was both material and pervasive which, as per Para 8 of SA 705, required the Auditors to give an adverse opinion (para 50). 12. The Auditors did not obtain Sufficient Appropriate Audit Evidence (SAAE) in a number of material account balances and class of transactions such as the following: a) Trade Receivables which constituted 37% of the total assets of MIIL and depicted adverse features indicating a significant risk of material misstatement (ROMM) (para 56). b) In respect of impairment test of investment in, and loan given to a subsidiary, the Auditors did not perform any audit procedures as required by SA 540 to evaluate whether the impairment test and documents given by the Company satisfied the requirements of Ind AS 36^4 (para 60). c) In respect of the Key Audit Matter (KAM) pertaining to valuation o....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... In view of the above-mentioned findings, this Order imposes the following Sanctions: i. Imposition of a monetary penalty of Rs.10,00,000/- (Rupees Ten Lakhs) upon CA Devang Dalal, who is also debarred for Five years 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; ii. Imposition of a monetary penalty of Rs.50,00,000/- (Rupees Fifty Lakhs) upon M/s. MH Dalal & Associates. B. INTRODUCTION and BACKGROUND 17. NFRA is a statutory authority set up under Section 132 of the Act to monitor implementation and enforce compliance of the auditing and accounting standards and to oversee the quality of service of the professions associated with ensuring compliance with such standards. NFRA has the responsibility to protect the public interest and the interests of the investors, creditors and others associated with the companies or bodies corporate that come under its purview. Under Section 132(4) of the Act, NFRA is vested with the powers of a civil court, and power to investigate the prescribed classes^9 of companies ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id on 18.08.2022. On comprehensive examination of the audit file, it was prima facie observed that the audit had been conducted in disregard of most of the SAs and the relevant provisions of the Act. The EP had, however, issued, on behalf of the Audit Firm, an unmodified opinion in the Independent Auditor's Report for the SFS and a qualified opinion for the CFS, certifying that the Financial Statements (both SFS and CFS) of MIIL reflected true and fair view in conformity with the accounting principles generally accepted in India. 23. On satisfaction that a sufficient cause existed to take action under sub section (4) of Section 132 of the Act, a SCN was issued to the Auditors on 18.10.2022 under Section 132 (4) of the Act read with Rule 11 of the NFRA Rules 2018 asking them to show cause why action should not be taken against the Auditors for professional or other misconduct in respect of their performance of the audit of MITL for FY 2020-21. The Auditors were charged with professional misconduct of: (a) failure to disclose a material fact known to him, which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial stateme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erted into capital advance during 2017-18, without the approval of the Audit Committee of the Company, as required under Section 177(4) of the Companies Act 2013. The Auditors were charged with failure to identify and report non-disclosure of the outstanding capital advance that resulted in non-compliance with the requirements of Para 15 and 25 of SA 550^13. 28. In reply, the Auditors simply reproduced Para 15 and 20 of SA 550 and stated that in their understanding of Para 18 of Ind AS 24, only transactions undertaken during the periods covered by the Financial Statements have to be disclosed; and that MIIL had disclosed the transactions in the FY 2020-21 and the outstanding balances with its subsidiaries as on March 31, 2021. The Auditors have not referred to Auditor's obligations under Para 25 of SA 550 and why they have not complied with this para, which is germane to their professional misconduct presently under consideration. Para 25 of SA 550 requires auditors to evaluate whether the identified related party relationships and transactions are appropriately accounted for and disclosed as per the applicable financial reporting framework; and to evaluate whether their effects....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Audit Committee, the whole purpose and objective behind the statutory requirement of Section 177 of the Act of mandating the public interest entities to have Audit Committees would get defeated. Hence, the argument that the aforesaid transactions had the approval of the BoD is unacceptable. Further, the Auditors have failed to comply with the SEBI LODR requirements under Clause 23. 32. The Auditors failure to ensure compliance with disclosure requirements of Ind AS 24, provisions of the Act and SEBI LODR requirements is a serious violation of professional standards especially as the related party transactions have historically been known to be a source of manipulation of financial position, siphoning of funds by the unscrupulous company promoters and management. We therefore conclude that the Auditors have violated Para 15 and 25 of SA 550. We note that the PCAOB, the US Audit Regulator, in its recent order^15 in the Matter of Cheryl L. Gore, CPA, imposed sanctions and monetary penalty among other things for failure to act with due professional care and professional skepticism and failure to perform sufficient procedures to determine whether related parties and relationships and....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... fluctuations. Considering the amounts involved in these transactions, we are not proceeding further with this charge, while maintaining that the Auditors should have been alert to non-disclosure on gross basis. C.2 Failure to report non-disclosure of material transactions 38. The Auditors were charged with not reporting the non-disclosure by MIIDL of pledging of equity shares of its subsidiary MSPL amounting to Rs. 102.30 crores for obtaining credit facilities from South Indian Bank and thus violating Para 14 of Ind AS 107,^16which requires that the carrying amount of Financial Assets pledged as collateral needs to be disclosed. 39. The Auditors submitted that the pledged collateral was in addition to the primary security (current assets) valuing Rs.1077.32 crores, constituting 66.29% of the total assets of the Company, whereas the value of the undisclosed shares of MSPL pledged as collateral security was only 5.71% of the total value of the assets and was immaterial to the users of the Financial Statements. They also referred to Note 25 to the SFS of MIIL which says that 'Working Capital facilities by banker's are secured by first pari passu charge on entire current ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....strued as an afterthought as none of these details were documented in the Audit Work Papers as required by Para 6 (b) of SA 230. All that is available in the Audit Work Papers is the Auditors' reliance on the company management representation that the outstanding trade receivables were fully recoverable, and no provision was necessary except for a provision for ECL of Rs. 2.14 crores as per Ind AS 109. Nevertheless, our analysis of this information/ explanation presented by the Auditors now shows some significant points of concern regarding the credit risk and impairment loss for trade receivables. 44. Apart from the fact that 16.12% of the total trade receivables stated to be at risk is a significant number, we find that 34.10% of the total unsecured trade receivables were under dispute/litigation; bad debts written off during the year were as high as 6.59% of the total outstanding receivables; the bad debts write off during last three years had increased from Nil in FY 2018-19 to 13.48% in the FY 2019-20 and to a staggering 51.14% of PBT in FY 2020-21. These figures are sufficient to raise red flags to an auditor, who will be expected to apply his professional skepticism to ri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rding credit risk exposure of trade receivable i.e., provision matrix, the loss allowance percentage used and the loss allowance against each past due bucket and other risk evaluation tools e.g., credit risk grading used for the Financial Assets has resulted in material non-compliance with the disclosure requirements of Para 35M and Para 35N of Ind AS 107^22. Ind AS Implementation Guidance- Example 12-Provision Matrix of Illustrative Examples of IFRS 9 Financial Instruments (extract given below) provides an illustration of the manner in which the credit risk exposure should be disclosed. We find that no such disclosure has been made by the Company and the Auditors have not reported this matter. Therefore, in light of above, we conclude that the Auditors have failed to report in their audit report the non-disclosure of the credit risk profile of trade receivables as per Para 35 M and 35 N of Ind AS 107 and have therefore not discharged their duties under SA 505. C.4 Failure to report non-consolidation of subsidiary 47. The Auditors were charged with failure to appropriately modify their opinion as per SA 705, even though the accounts of MIIL's subsidiary (MSPL) were not con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al Statements of MSPL into that of MIIL would have been material and pervasive, as the assets and liabilities of MSPL constituted about 19.63% and 32.76% respectively of the assets and liabilities of MIIL as shown at Table 2. Para 8 of SA 705 requires the auditor to express an adverse opinion when misstatements, individually or in the aggregate, are both material and pervasive to the Financial Statements. In light of above, we conclude that the qualified opinion by the Auditors was without due diligence and sufficient appropriate audit evidence, and the Auditors have failed to comply with Para 8 of SA 705. C.5 Failure to obtain Sufficient Appropriate Audit Evidence (SAAE). 51. The Auditors were charged for failure to comply with SA 200^24 as they did not obtain reasonable assurance whether the [financial Statements were free from material misstatements and failed to obtain SAAE. 52. Responding to the charge, the Auditors submitted that they have sufficiently demonstrated that the allegations are unsustainable on account of the submissions made by them. 53. On perusal of the audit file, it is observed that the Auditors have failed to obtain SAAE in respect of a number....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erial misstatement, substantive procedures to respond to significant risks, recognition and measurement criteria, evaluating the reasonableness of the accounting estimates, disclosures related to accounting estimates and documentation etc. Certain critical requirements for audit of accounting estimates are as follows: a) the auditor shall obtain an understanding of the following as per Para 8 of SA 540: i) The requirements of the applicable financial reporting framework relevant to accounting estimates, including related disclosures. ii) How the management makes accounting estimates, and an understanding of the data on which they are based, including the method or the model, used in making the accounting estimate, relevant controls, the assumptions underlying the accounting estimates. Whether there has been or ought to have been a change from the prior period in the methods for making the accounting estimates, and if so, why etc. b) the auditor shall obtain SAAE whether management's decision to recognise, or to not recognise, the accounting estimates in the Financial Statements is in accordance with the applicable financial reporting framework? (Para 17 of S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Company recognized ECL allowance of Rs. 133.24 crores for these trade receivables/other assets under dispute, the PBT for FY 2020-21 would have been significantly lower than the reported PBT of Rs. 136.47 crores. Therefore, the failure of the Auditors to challenge the management decision of recognizing only a small amount of impairment loss allowance in respect of trade receivables was an act of gross negligence and displayed lack of due diligence. Investments 59. The total Investments of Rs. 132.79 crores constitute 7.41% of the Total Assets of the Company. A significant part (99.52%) of these investments were classified as non-current investments and constitute 22% of the total non-current assets of MIIL as of 31.03.2021. Further, these non-current investments are primarily investments in equity shares of two subsidiaries viz. MSPL and Man Overseas Metal, DMCC. We observe from the audit file that the audit program document depicts the following work performed by the Auditor: a) Valuation Report Checked^36 b) Impairment testing done^37 The screenshot of the same is reproduced below: In addition, the Audit Work Paper file contains the following documents: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was meant for sale and income tax purposes. 60.3.4 As part of the Net Adjusted Value method for estimating fair value, the external valuer has used DCF method for one asset category in the form of real estate inventories. In these estimates, discount rates, cash flow forecasts, terminal value and industry/economic growth projections are critical determinants, but the Auditors have not checked whether these were in accordance with the prescription of Ind AS 36 and the source of data/information used was reliable or not. 60.3.5 The External Valuer has not used 'Comparable Companies Multiple Method' giving reasons as lack of exact comparable companies. However, he has used data of similar firms to determine the cost of equity to estimate the Weighted Average Cost of Capital to arrive at discount rates. This anomaly has not been questioned by the Auditors. 60.3.6 The Auditors were aware of the dispute among the promoters of MIIL regarding the value of assets and liabilities of MIPL, MSPL and claims on MIIL. These disputes have been claimed as the reason for not consolidating the Financial Statements of MSPL, which is subject to impairment test, into that of MIIL since 2015. Ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ining the Valuation of Stock is not authenticated raising doubts about its authenticity and reliability. We note that there is no evidence of the Auditors presence at the inventory count by the management, as required under the Standards. Also, the Audit Work Papers like the one reproduced above, are evidence of the gross negligence of the Auditors in performing their professional duties to obtain SAAE in respect of inventories. We note that the inventories have historically been a source of misstatement and manipulation of the Financial Statements and therefore we find that the Auditors have been grossly negligent in performing their duties in respect of the audit of inventories. Trade Payables 65. Trade Payables constitute 54.12% of Total Liabilities of MIIL as of 31.03.2021 and therefore are a material account balance. The Audit Work Papers consist of | Page of Vendor Ageing^50 , a list of outstanding vendors as on 31.03.2021^51, and 2800 pages of Purchase Invoices^52. 66. The deficiencies in the audit work are similar to those mentioned in respect of Trade Receivables (refer para 56). The audit work is merely collection and filing of reams of photocopies of purchase....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itical prescriptions are: 72.1 While the auditor should combine the audit of ICoFR and the audit of Financial Statements, the objectives of the audits are not identical. However the auditor must plan and perform the work to achieve the objectives of both audits. 72.2 The auditor should design his or her testing of controls to accomplish the objectives of both audits simultaneously: 72.2.1 To obtain sufficient evidence to support the auditor's opinion on ICoFR as of year-end, and 72.2.2 To obtain SAAE to support the auditor's control risk assessments for the purposes of the audit of Financial Statements. 72.3 Planning the audit, role of risk assessment, addressing the risk of fraud, materiality, identifying entity-level controls, identifying significant accounts and disclosures and their relevant assertions., testing controls-testing operating effectiveness, forming an opinion. 72.4 Audit Documentation: It requires that the auditor should comply with the requirements of SA 230, Audit Documentation to the extent applicable. 73. In respect of the audit work relating to ICoFR, there is no evidence at all except for a copy of the unsigned and unauthenticated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng no previous connection with the audit to understand: (a) The nature, timing, and extent of the audit procedures performed to comply with the SAs and applicable legal and regulatory requirements; (b) The results of the audit procedures performed, and the audit evidence obtained; and (c) Significant matters arising during the audit, the conclusions reached thereon, and significant professional judgments made in reaching those conclusions. 79. The averment made by the Auditors that the audit documentation is sufficient to enable them to understand the nature, timing and extent of audit procedures performed, is unconvincing because it fails one of the objectives of the audit documentation, that is, to enable other external parties to carry out inspections in accordance with laws and regulations. 80. Further, there was no audit evidence as to who performed the audit work, who reviewed the audit work performed, and the date and extent of such review, reflecting violation of Para 9 of SA 230. 81. The Auditors have also failed to document discussions of significant matters with TCWG, including the nature of significant matters discussed, and when and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e procedures performed, evidence obtained, and conclusions reached, including in those areas of the audits involving significant risks. For the FY 2016 and 2017 Issuer A audits, the documentation also failed to demonstrate who performed the work and the date such work was completed. Additionally, in each of the Issuer A and Issuer B audits, the audit documentation was insufficient to demonstrate which aspects of the audit and which audit documentation Bharat Parikh reviewed." 84. We also note that the Executive Counsel to the Financial Reporting Council (FRC), the UK Audit Regulator, reprimanded Deloitte LLP and John Charlton for breach of ISA 230^56 where the auditors failed to adequately document the audit work papers in the audit of Mitie Group plc. for the year ended 31 March 2016, and imposed a financial sanction of two million pounds on Deloitte and 65,000 pounds against Charlton. 85. In the present case, we note that instead of being an exercise in application of professional skill and care to ensure quality of the audit evidence, the Auditors work had degenerated into simply collecting and filing reams of photocopies of documents of routine nature (e.g., 2900 pages of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncluded that the "the Firm violated PCAOB rules and auditing standards with respect to an audit and a quarterly review of one issuer audit client. Specifically, the Firm in conducting its audit of the Financial Statements of WebXU for the year ended December 31, 2011, failed to properly assess the risks of material misstatement. As a result, the Firm failed to properly identify significant risks in connection with the 2011 WebXU audit. The Firm also failed to properly establish an overall strategy for the audit and develop an audit plan that included planned risk assessment procedures and planned responses to the risks of material misstatement. In addition, the Firm failed to perform sufficient audit procedures that addressed the risks of material misstatement. "PCAOB censured the Firm, revoked its registration permanently, and imposed a civil money penalty of $12,500 upon the firm. C.8 Failure to perform risk assesment procedures and response to such risks 90. 'The Auditors were charged with failure to comply with Para 5, 6 and 11 of SA 315^57 which requires that the auditor shall perform risk assessment procedures to provide a basis for the identification and assessment of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Papers contain following documents only: a) 3 pages of List of Preliminary Audit Requirements^59 b) 7 pages of Policies & Procedures on Internal Financial Control^60 c) 12 pages of Internal Audit Reports for the 3 quarters of FY 2020-21^61 93.1 The document on Policies & Procedures on Internal Financial Control has no signature or authentication by the Company. Further, there is no evidence of the Auditors having performed any audit steps such as walkthroughs, tests, observations, inspections or inquiries with the Management or other appropriate officials to understand the details of the design and operation of various controls and processes. The Audit Work Papers as well as the above referred documents lack even the basic information, the name and other details of the IT system used by the Company. 93.2 The Executive Summary of Internal Audit Reports for the three quarters during the audit period FY 2020-21 do not even have basic details like date of the internal audit report, who had performed these internal audits, signature of the internal auditors etc. This notwithstanding, the internal audit reports contain certain matters of serious concern o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... type of audit procedures e.g., the auditor shall perform Test of Controls to verify the operating effectiveness of relevant internal controls; the auditor shall design and perform substantive procedures for each class of material transactions, account balances, and disclosure; 99.3 The auditor shall document nature, timing and extent of the the audit procedures, linkages of these procedures to ROMM. 100.The sampling method and approach is mentioned as 100% Random/Scanning, Sampling Basis, High Value/Random, on test check basis, materiality basis and relevant compliance. However, the 'basis' for these sampling approaches, how they are responsive to the ROMM and how they are in compliance with the requirements of SA 530, Audit Sampling, have not been detailed. 101.In the light of above glaring deficiencies, we conclude that the Auditors were found wanting in compliance with Para 1,5 & 6 of SA 330. C.10 Failure to determine materiality 102.The Auditors were charged for failure to comply with Para 10 and 14 of SA 320, which require an auditor to determine materiality for the Financial Statements as a whole while establishing the overall audit strategy and the auditor to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tly, the Council of the Institute of Chartered Accountants of India has approved the Preface to the Standards on Quality Control, Auditing, Review, Other Assurance and Related Services. The said Preface introduces a totally new format of writing Standards, in line with that adopted by the International Auditing and Assurance Standards Board pursuant to its Clarity Project. According to the new format the Standards on Auditing (SAs) would now contain two distinct sections, one, the Requirements section and, two, the Application Guidance section. IV. The fundamental principles of the Standard are contained in the Requirements section and represented by use of "shall". Hitherto, the word, "should" was used in the Standards, for this purpose. ..." 107. However, we find that the Auditors have not determined any 'Materiality' or 'Performance Materiality' in the audit of Financial Statements of MIIL, which is a mandatory requirement. All that can be found in the Audit Work Papers is vague and general expression like 'Materiality Basis', 'High Value' and Random' in the column titled 'Sampling Method' of just two pages of the undated audit programme^74 . 108. In view of the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....merely given balance confirmation obtained from different banks. The Auditors have not documented any conclusion nor recorded reasons of reduction of contingent liabilities by Rs. 543.24 crores in 2020-21. 114.On analysis of the Audit Working Papers referred to by the Auditors it is nowhere seen that they have raised queries to the management or have had discussions with them regarding the substantial changes in figures in FY 2020-21 from FY 2019-20. The table below shows the change in items year on year: 115. In the light of above, the audit file lacks documentation regarding any analytical procedures performed, which proves that the Auditors failed to design and perform analytical procedures. We, therefore, conclude the Auditors have violated Para 3(b) and Para 6 of SA 520. D.2 Failure to prepare documentation regarding Auditor's responsibilities relating to fraud 116.The Auditors were charged with failure to comply with the requirements of Para 16 and 24 of SA 240. 117. Responding to the charge, the Auditors submitted that necessary inquires with the management were made and as per the information and explanation given by the management, no fraud on or by the Comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iscussed with the management and obtained the valuation report. However, the Auditors admit that there is no documentation for every communication with TCWG and referred to Para 19 of SA 260, which states '...... Written communications need not include all matters that arose during the course of the audit.' 121.We observe that the Auditors failed to understand the importance of TCWG as a body which has the responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity which includes overseeing the Financial Reporting process. It is pertinent to mention that impairment testing of investment of MSPL was also made a Key Audit Matter in the Audit Report. However, the Auditors assumed that it was not significant to record in writing whereas Para 19 of SA 260 states that the Auditor shall communicate in writing with TCWG regarding significant findings from the audit if, in the auditor's professional judgement, oral communication would not be adequate. Further, Para 23 of SA 260 states that, "Where matters required by this SA to be communicated are communicated orally, the auditor shall include them in the audit documenta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gagement with all its clients and compliance with SA 220. (ii) Certain cases communicate with the previous Auditor. (iii) After engagement terms are finalized and executed, a dedicated team is assigned and an overall audit strategy is developed which includes the scope, timing and direction of the audit, that guide the development of audit pian and develop overall strategy. (iv) Determine materiality, the firm analyses a class of transactions, account balances and disclosures made by the entity, impact of such transaction and disclosure made by the entity, impact of such transactions and disclosure on the financial status of the Company etc. (v) While identifying risk, inquiries are raised with management, those charged _with governance. (vi) Further, the accounting standards, legal and_ regulatory requirement keep changing and are updated every year. (vii) If the Company has been audited before, the changes in its financial situation from the last audit is taken into consideration. Also review of note of previous year audit notes and observations are also done which assist the team to plan the audit in an effective manner. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s as audit documentation by the Firm completely fails to ensure even the minimum essential to meet the requirements of SQC 1 and SA 230 as mentioned in para 75 to 123 of this Order. The fundamental aspects of integrity of audit files, accountability of the Firm and its personnel, maintaining sufficient appropriate audit evidence for the audit planning, performance, and basis for conclusions for achieving audit objectives are seriously compromised as has been detailed on pre-pages. Consequently, the Audit Work Papers maintained by the Firm are not found to meet the compliance requirements of SA 230. In not having reviewed and rectified these deficiencies, the Audit Firm is guilty of serious professional misconduct. 129. Therefore, as discussed above, the Audit Firm has made departure from the Standards and the Companies Act, 2013 in the conduct of the audit of MIIL for FY 2020-21. As is evident from the above discussion, the Audit Firm has given an unmodified opinion in SFS and a qualified opinion on the CFS without any basis. The poor quality of audit, incomplete documentation and attempt to mislead through evasive replies further compounds the professional misconduct on the par....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nion.(Refer Clause 8 of Part I of the Second Schedule of the CA Act)., This charge is proved as explained in Section C, D and E above. v. The Auditors committed professional misconduct by failing to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances. (Refer Clause 9 of Part I of the Second Schedule of the CA Act). This charge is proved as explained in Section C, D and E above. G. Findings on Additional Articles of Charges of Professional Misconduct by the Audit Firm 132. In addition to above, the Audit Firm has committed Professional Misconduct as defined in Section 132(4) of the Companies Act, read with Section 22 the Chartered Accountants Act 1949, as amended from time to time, as failure to exercise due diligence and being grossly negligent and by failing to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances, in the conduct of professional duties in respect of matters as explained in Section E above and thus violated SQC I. H. PENALTY and SANCTIONS 133.Section 132(4) of the Companies Act, 2013 provides for pen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssional misconducts have been proved and considering the nature of violations and principles of proportionality, we, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, order: i. Imposition of a monetary penalty of Rs.10,00,000/- (Rupees Ten Lakhs) upon CA Devang Dalal who is also debarred for Five years 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. ii. Imposition of a monetary penalty of Rs.50,00,000/- (Rupees Fifty Lakhs) upon M/s. M H Dalal & Associates. 140. This Order will become effective after 30 days from the date of its issue. Foot Notes ^1 Rule 3 of NFRA Rules, 2018 ^2 Indian Accounting Standard 24, Related Party Disclosures (Ind AS 24) ^3 Indian Accounting Standard 107, Financial Instruments: Disclosures (Ind AS 107) ^4 Indian Accounting Standard 36, Impairment of Assets (Ind AS 36) ^5 Standard on Auditing 501, Audit Evidence-Specific Considerations for Selected Items (SA 501) ^6 Indian Accounting Standard 115, Revenue from Contract with Customers (Ind ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....P Reference- Page 159- of Audit File 2 ^40 WP Reference- Pages 170-173 of Audit File 2 ^41 WP Reference- Item #7, Page 21 of audit file 1 ^42 Indian Accounting Standard 36, Impairment of Assets (Ind AS 36) ^43 Indian Accounting Standard 113, Fair Value Measurement (Ind AS 113) ^44 WP Reference- Item #7, Page 21 of Audit File | ^45 WP Reference 214 to 336 Audit File 2 ^46.WP Reference 337 to 347Audit File 2 ^47.WP Reference- Item #6, Page 21 of Audit File 1 ^48. WP Reference- Item #6, Page 21 of Audit File 1 ^49. Standards on Auditing 501, Audit Evidence-Specific Considerations for Selected Items (SA 501) ^50. Page 748 Audit File 2 ^51. Page 749 to 763 Audit File 2 ^52 Page 764 10 3558 Audit File 2 ^53 Standards on Auditing 240, The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements (SA 240) ^54 WP reference Page 42-48 of Audit File 4 ^55 Refer Page 7 of ASIC Audit Inspection Report - Report 743 October 2022 ^56 ISA. 230 is the corresponding international standard to SA 230 ^57.Standard on Auditing, Identifying and assessing the Risk of Material Misstatement through understanding the Entity and its E....
X X X X Extracts X X X X
X X X X Extracts X X X X
....litigation Total amount receivable under litiga- 13,324.46 tion (Refer note no 42(a) to the finan- cial statements) (b) Litigation related to other matters (re- 3666.72 fer APB 4 pg 49) (c) Matter under litigation relating to trade 9657.74 receivables (6a-6b) 7 % to total unsecured receivables 34.10% 8 Balance undisputed unsecured trade re- 18664.14 ceivables 9 Receivable belonging to the Dubai 8015.14 branch (audited by other auditor) Recovered subse- quently 10 Balance receivables from Indian Branch 10649.00 a) 90% of receivables 11 % of trade receivables risk to the total receivables 16.12% are outstanding for less than one year as On 31.03.2021 b) Outstanding amount has been received as on signing of audit re- port for the FY 2021- 22. Hence, low risk asso- ciate with trade receiv- ables Document 3 IE76 IE77 On that basis. Company M estimates the following provision matrix: Default rate Current 0.3% 1-30 days past due 1.6% 31-60 days past due 81-90 days past due 3.6% 6.6% More than 90 da....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ars - 3 years MSME 70,597,527 - 4,641,310 1,636,918 Vendor Agieng FY 20-21 Non Current OTHER THAN MSME 3,486,964,536 1,574,729,005 Grand Total 3,557,502,063 1,030,303 1,146,660 5,921,830 5.948.865 1.408,131 3 years and above Grand Total 1 4,252,653 82,158,005 8,444,362 5,093,087.323 7.741,424 17,730,528 21,983,182 5,183,689,690 1,581,007,233 8,098,793 15.098,421 Document 954 naves CADEVANG DALAL a Sample Scanned invoice you Reconciliation of Saes with b Document 10 CLIENT: CHECKLIST FOR ACCOUNTING STANDARDS Man Industries (India) Limited Audit Period: F.Y 2020-21 INDIAN ACCOUNTING STANDARDS CHECKLIST CONTROL SHEET IND AS COMPLIANCE WITH ACCOUNTING STANDARDS Ind AS 101 First time adoption of IND AS Ind AS 102 Ind AS 103 Ind AS 104 Share Based Payment Business Combination Y/N/NA No No No No Ind AS 105 Ind AS 106 Ind AS 107 Ind AS 108 Ind AS JO9 Ind AS 110 Ind AS IT Ind AS 112 Ina AS 113 Ind As 114 Ind AS 1 Ind AS 2 Ind AS 7 Ind AS B Ind AS 10 Insurance Contracts Non Current Asset ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is no signature of the preparer and Audit Manager. 41 Signed by the EP and EQCR Partner, but no date is mentioned on the work paper. Document 12 MAN Industries (India) Limited Preliminary Requirement list for Statutory Audit for March 31, 2021 Sr. No. Requirements List Audit Engagement Letter 1 2 3 (With Reference To SA 210) Minutes of Board meeting and EGM Audit Committee Minutes 4 |Draft Financials Standalone 5 DPT 3 6 Internal Audit Report 7 List Of Various Registration Obtained In Various Laws 8 List Of Branches & Books Maintained Status Company Remarks MHD Remark Document 13 Table-4 Assertions used by the Auditor to consider different types of material misstatements (Refer Para A121 - A125 of SA 315 for more details) Assertions Occurrence Completeness Class Material Misstatement Categories of Transac- Account bal- tions/Events during the ances at the pe- audit period riod end ☑ ✓ - Presentation and Disclo- sure ☑ Accuracy Cut-off Classification Existence Rights and obligations Valuation and allocation ....