TaxTMI 
TaxTMI 
2024 (5) TMI 333
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 reminders, the Audit Firm and the EP did not submit the requisite documents and informa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t 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 NFRA's domain [Vide Rule 3(1)(a) of National Financial Reporting Authority Rules, 2018.]. M/s ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 provided. 13. On finding sufficient cause for action under section 132(4) of the Act, 2013 read with the NFRA Rules 2018, a SCN for non-cooperations by the Auditors, was issued and sent through post and ema....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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 Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements".] and applicable for the financial year ended 31.03.2018, 31.03.2019 and 31.03.2020. * Audit files. * Details of Related parties of Auditee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mation 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 letter dated 15.09.2023 for submission of other information (5 extension). i) On 30.09.2023, the Auditors requested for extension of 2 more weeks for submission of information. Along with the Auditors' request for extension, the Auditors submitted partial information such as List of Network Firms of the Audit Firm and Details of Revenue earned from the Auditee Company. As the Auditors did ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubmit 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 shared as part of the Audit File; and a portion of other information has been submitted for FY 2019-20. * The Auditors requested not to take any action in this matter. 18. We have considered the Auditors' reply and observe as under: * The Auditors have not given any reason for not supplying the remaining information for FY 2019-20 to 2021-22 despite the fact that the Hon'ble High Court of Telangana has not stayed proceedings for FY 2019-20 to 2021-22. * The Auditors have wrongly state....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 request for additional time before the Executive Body of NFRA. * On 26.03.2024 the EP sought additional time of four weeks on medical ground. * On 27.03.2024 NFRA granted additional time of four weeks subject to production of a duly notarized affidavit that he had neither undertaken any professional work from 19.03.2024 to 27.03.2024 nor will undertake any professional work during adjournment period. The EP submitted a duly notarized affidavit on 05.04.2024 declaring that he had neither undertaken nor going to undertake any kind of professional engagements involving financial reporting, auditing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd 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 dated 25.07.2017], PCAOB censured the audit firm and revoked its registration for non-cooperation in its investigation, by failing to comply with demand requiring production of documents, including audit work papers. b) In the matter of In the Matter of Price Waterhouse, Bangalore, Lovelock & Lewes, Price Waterhouse & Co., Bangalore, Price Waterhouse, Calcutta, and Price Waterhouse & Co., Calcutta [CAOB Release No. 105-2011-002 April 5, 2011], PCAOB censured and limited activities of the audit firms besides imposing monetary penalty for non-cooperation in an inspection by modifying audit file. c) In the matter of J. Crane CPA, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny 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) 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 the fees received, in case of firms. (B) debarring the member or the firm from-{I) being appointed as an auditor or internal auditor or undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate; or (II) performing any valuation as provided under section 247, for a minimum period of six months or such higher period not exceeding ten years as may be determined by the National Financial Report....