TaxTMI 
TaxTMI 
2024 (5) TMI 333
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.... 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 M/s Brightcom Group Limited, for the FYs 2014- 15 to 2021-22 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 letter dated 26.04.2023 and Order dated 22.08.2023.] regarding financial irregularities by the BGL and its Auditors. (refer para 10 of this Order). 4. To investigate into possible professional misconduct, the audit files and some other information for the year 2017-18 to 2021-22 were called for from the Audit Firm and the EP. The Hon'ble High Court Telangana stayed the proceedings for the Financial Years (FY) 2017-18 and 2018- 19, therefore matter for these two FYs was not pursued. However there was-no stay for the proceedings for FY 2019-20 to 2021-22 Though the Firm submitted the Audit Files for FY 2019-20 to 2021-22 after repeated reminders, it did not submit other information called for , which was crucial for the investigation. Despite repeated reminde....
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.... National Financial Reporting Authority is a statutory authority set up u/s 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 is empowered u/s 132(4) of the Act to investigate the prescribed classes of companies and impose penalty for professional or other misconduct of the individual members or firms of chartered accountants. 8. The statutory auditors, both individual and firm of chartered accountants, are appointed by the members of a company u/s 139 of the Act. The statutory auditors, including the Engagement Partners and the Engagement team that conduct the audit, are bound by the duties and responsibilities prescribed in the Act, the rules made thereunder, the SAs, including the Standards on Quality Control ("SQC' hereafter) and the Code of Ethics, the violation of which constitutes professional misconduct, and is punishable with penalty prescribed u/s 132(4)(c) of the Act. 9, The Brightcom Group Limited (BGL) was listed at Bombay Stock Exchange and National Stock Exchange and therefore falls under N....
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.... statements, which failed to adequately explain transactions. 11. Considering the gravity of the case, NFRA decided to investigate into possible professional misconduct, and on 15.06.2023, M/s PCN & Associates was advised to submit requisite documents including audit files and other information (detailed in para 15(a) of this Order) relating to statutory audit of Brightcom Group Limited for the financial year 2017-18 to 2019- 20 within 15 days' time. Further, on 29.08.2023, M/s PCN & Associates was advised to also submit requisite documents including Audit Files and other information relating to statutory audit of Brightcom Group Limited for the financial year 2020-21 to 2021-22 within 15 days' time. 12. The communication sent to the Firm via speed-post and e-mail was duly delivered. The auditors requested for extension of time for submission of the Audit Files. The auditors were granted multiple extensions of time (as detailed in section -C of this Order) for submission of requisite information. However, despite multiple extensions of time, the requisite information for FY 2019-20 to 2021-22, except for the Audit Files; and some information for FY 2019-20, was not provide....
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....ord. No response received from the Firm and the EP. Accordingly, this Order is being issued based on the material on record. The specific failure of the Auditors' is discussed in section C of this Order. C. Major lapses on the part of the Firm and the EP Failure to submit requisite information and non-cooperation with NFRA 15. The Auditors were charged with failure to submit information called for by NFRA, despite being given several opportunities. The Auditors were asked to submit the Audit Files and other information for FY 2019-20 to 2021-22. They submitted the Audit Files but did not submit most of the other important information despite being given multiple opportunities. The sequence of events is detailed below. For FY 2019-20 a) On 15.06.2023, the Auditors were advised to submit requisite documents including audit files and other information relating to statutory audit of Brightcom Group Limited for the financial year 2017-18 to 2019-20 within 15 days' time. The information called from the Auditors was as detailed below : • The Quality Policy Document prepared in accordance with SQC I [SQC 1 -"Quality Control for Firms that Perform Aud....
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....ate for submission of the Audit File and other information for Financial Year 2019-20 was 15.08.2023. The Auditors were also informed that the Hon'ble High court did not stay the proceedings for the financial year 2019-20. Despite that the Auditors did not submit the Audit File for FY 2019-20. The Auditors were again advised to submit the audit files and other information within 7 days of the issue of letter (3"4 extension). f) On 21.08.2023, the Auditors submitted the Audit File for FY 2019-20. However, other information as mentioned at para 15(a) above was not submitted by the Auditors. g) On 29.08.2023, the Auditors were again advised inter alia to submit the remaining information called for in respect of FY 2019-20 as originally requested vide letter dated 15.06.2023. The last date for submission of the other information was again extended till 13.09.2023 (4 extension). h) On 13.09.2023, the Auditors requested for eight more weeks' time to submit the said information. While considering the time already provided to the Auditors for submission of information, the Auditors were reminded and given a further time extension of seven days, through NFRA lette....
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.... the Auditors had not maintained audit files in accordance with Standards on Auditing and SQC | and that the Auditors had nothing to say in the matter, and that the matter would be decided based on the materials on record. q) The Auditors submitted the Audit Files for FY 2020-21 and FY 2021-22 on 30.11.2023. However, the other information called for as per NFRA letter dated 29.08.2023, was not submitted. 16. The Auditors were also required to submit other information (as per para 15(a) above) along with the Audit Files, however, despite Nine letters for FY 2019-20 and Five letters for FY 2020- 21 & 2021-22, the Auditors submitted incomplete information for FY 2019-20, and did not submit any of the requisite information (except the Audit Files) for relating to FY 2020-21 & 2021-22. 17. While responding to the SCN, the Auditors replied on 16.02.2024 that : • Hon'ble High Court Telangana vide order dated 01.08.2023 in WP no. 20458/2023 had stayed proceedings for FY 2017-18 and 2018-19. • SCN sought other information for the FY 2017-18 to 2021-22. • Quality policy document as per SQC 1 and applicable for FY 2018-19 to 2021-22 were s....
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....2024 and 24.04.2024.] It can be observed from the above Table -1 that the EP did not submit requisite information to NFRA on the medical ground, however during the same period, he continued to perform his professional work even till midnight. It is further noted that the EP generated 577 UDIN between 15.06.2023 (first communication of NFRA) to 20.04.2024. This proves non- cooperation of the EP in providing information to NFRA. 20. Itis further noted that the EP did not co-operate even in attending a Personal Hearing (PH) and had submitted a false affidavit to NFRA to avoid attending PH as detailed hereafter. • NFRA vide email dated 08.03.2024 provided an opportunity of personal hearing on 19.03.2024 to the Firm and the EP. • On 14.03.2024 the EP requested four weeks additional time on the ground of engaging a legal counsel. • On 15.03.2024 NFRA adjourned the personal hearing on 27.03.2024. • On 20.03.2024 the EP sought extension of one month on medical ground. • On 21.03.2024 NFRA sent him a video conferencing link with the advice to attend the personal hearing on 27.03.2024 and present his case including the re....
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.... of Disciplinary cases, the ICAI Council's decision dated 5^th January, 2005 and Judgement of High Court of dated 1st March, 2007]' a Chartered Accountant was held guilty of professional misconduct under Clause (7) of Part I of Second Schedule and other misconduct under section 22 of the Chartered Accountants Act 1949, for his failure to appear before Tax Authorities. CA Gora Chand Mukherjee [Gora Chand Mukherjee in Re:- [PPR/P/10/E/2007/DD/6/E/ 8INF/08/DC/94/2010] Judgement delivered by ICAI on 15th December 2016] was also held guilty of professional misconduct falling within the meaning of Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act 1949 for delay in submission of information to RBI and for not submitting appropriate information. 23. 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: a) In the matter of Crowe Horwath (HK) CPA Limited [PCAOB Release No. 105-2017-031....
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....2018]. The Brightcom Group Limited is one such entity, which is listed with stock exchanges in India and has significant public interest. 26. 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. 27. The Auditors' professional misconduct is demonstrated by their failure to cooperate with NFRA and mislead NFRA as outlined in section D of this Order. The non-cooperation displayed by the Auditors is troubling since it hinders the investigation of any possible professional misconduct on their side. This substantially impedes NFRA's ability to fulfil its statutory duty of providing effective oversight. If such auditors are allowed to do statutory audits of any company or body corporate, the public interest is probably going to be jeopardized. 28. 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) impos....
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....ectively 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. 32. This Order will become effective after 30 days from the date of its issue. ============= Document 1 Sr Date of EP's Period for Nature of No letter seeking which medical extension of extension ground time sought 1 31.07.2023 1 month Accident- Leg fractured 156 to No of UDIN UDIN generation generated period Nature of documents for which UDIN were generated 31.07.2023 Statutory audit, Limited review reports, Form 3CB Section 44AB(a) of Income Tax Act, Internal audit, 12.09.2023 Turnover certificates, Net worth certificates, and Other certificates 13.09.2023 29.09.2023 30.09.2023 13.10.2023 14.10.2023 Statutory audit, Form 3CB - Section 44AB(a) of Income Tax Act, Turnover certificates, and Other certificates Statutory audit, Form 3CB - Section 44AB(a) of Income Tax Act, Turnover certificates, and Other certificates Statutory audit, Limited review reports, ....