TaxTMI 
TaxTMI 
TaxTMI 
2024 (1) TMI 461
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.... D. Articles of Charges of Professional Misconduct by the EP E. Penalty and Sanctions A. EXECUTIVE SUMMARY 3. The National Financial Reporting Authority ('NFRA' hereafter) initiated investigation into the professional conduct of statutory auditors of Seya Industries Limited, Mumbai, for the FY s 2018- 19 and 2019-20 under Section 132(4) of the Companies Act, 2013 ('Act' hereafter). This was pursuant to information received from the Securities and Exchange Board of India ('SEBI' hereafter) dated 28.03.2023 about the non-compliance with the accounting standards by the company; misreporting in the financial statements; and non-cooperation by the auditor Anil Chauhan & Associates. 4. To investigate the professional misconduct, the audit files and some other information were called for from the EP. Despite repeated reminders, the EP did not submit the requisite documents and information. Thus, NFRA concluded that the EP either had no such documents with him or was unwilling to cooperate with NFRA in discharge of its statutory responsibility under section 132 of the Companies Act. On 22.09.23, a show cause notice for non-compliance was issued to the EP, wh....
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....ct, and is punishable with penalty prescribed u/s 132( 4)(c) of the Act. 9. Seya Industries Limited (SIL) was incorporated in 1990 and listed at Bombay Stock Exchange in the financial year 1993-94 and at National Stock Exchange in the financial year 2019-20, and therefore falls under NFRA domain [Vide Rule 3(1 )(a) of National Financial Reporting Authority Rules, 2018]. During the FYs 2018-19 and 2019-20, SIL was in the business of manufacturing of pharmaceutical / personal & health / printing inks & paints and agrochemicals care products etc. As disclosed by the Company in its annual report, the company prepared its Financial Statements ('FS ' hereafter) in accordance with Indian Accounting Standards (' Ind AS' hereafter) as notified by Ministry of Corporate Affairs. 10. NFRA took up sou motu investigation into the role of the statutory auditors of Seya Industries Limited u/s 132(4) of the Act after receipt of a letter dated 28.03.2023 from SEBI about noncompliance with the accounting standards and misreporting in the financial statements by the company, and non-cooperation by the auditor. Some serious issues had been raised by SEBI in its Order dated 20.3.2023, ....
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....THE PART OF THE EP Failure to maintain Audit Files and to co-operate with NFRA 14. The EP was charged with failure to maintain the Audit Files as per the provisions of SA 230 [Audit Documentation] for the statutory audit of SIL for the FY s 2018-19 and 2019-20, and to submit the requisite information, despite *repeated communications from NFRA. 15. SA 230 states that audit documentation assists the engagement team to plan and perform the audit, and hold them accountable for their work. It also enables to conduct the external regulatory inspections (para 3). SA 230 requires an auditor to prepare audit documentation in timely manner, sufficient to enable an experienced auditor, having 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 (para 7 & 8). The auditor is also required to assemble the aud....
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....D/6/E/ SINF/08/DC/94/2010] Judgement delivered on 15th December 2016] was also held guilty of professional misconduct falling within the meaning of Clause (7) of Part J of the Second Schedule to the Chartered Accountants Act 1949 for delay in submission of information to RBI and for not submitting appropriate information. 19. At the International level also, such conduct is viewed seriously. The Public Company Accounting Oversight Board (PCAOB), the USA Audit Regulator, have sanctioned firms/individual Certified Public Accountants (CPAs) for non-cooperation with the regulator, including revocation of license. Some such instances are listed below: i. In the matter of Crowe Horwath (HK) CPA Limited [PCAOB Release No. 105-2017-031 dated 25.07.2017] , PCAOB censured the audit firm and revoked its registration for non-cooperation with its investigation, by failing to comply with Demand requiring production of documents, including audit work papers. ii. In the matter of Li and Company, P. C.[PCAOB Release No. 105-2016-022 dated 14.06.2016], PCAOB censured and revoked its registration for non-cooperation with a Board investigation and produce certain documents and information. iii.....
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....fessional skepticism and due diligence and report his opinion in an unbiased manner. Statutory audits provide useful information to the stakeholders and public, based on which they make their decisions on their investments or do transactions with the public interest entity [Public interest entity as defined in Rule 3 of NFRA Rules 2018] 23. Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proven cases of professional misconduct are to be viewed, is evident from the fact that a minimum punishment is laid down by the law. 24. As detailed in the preceding paragraphs of this Order, there was complete non-cooperation by the EP with NFRA, which establishes his professional misconduct. 25. Section 132(4)(c) of the Companies Act 2013 provides that National Financial Reporting Authority shall, where professional or other misconduct is proved, have the power to make order for- (A) imposing penalty of- (I) not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and (II) not less than five lakh rupees, but which may extend to ten times of t....