AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (1) TMI 18
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....ofessional Misconduct E. Sanctions and Penalties A. EXECUTIVE SUMMARY 2. Pursuant to Securities and Exchange Board of India (SEBI) sharing in October 2022 information regarding misstatements in the financial statement of DB Realty Ltd, NFRA suo moto initiated examination into the professional conduct of the statutory auditors of DBRL under Section 132(4) of the Companies Act 2013 (Act). DBRL is listed on stock exchanges and hence a public interest entity. A Show Cause Notice was issued to CA Chetan Desai, who was the Engagement Partner (EP) and CA Rakesh Rathi, who was the Engagement Quality Control Reviewer (EQCR) for this audit engagement. 3. NFRA's examination inter alia revealed that in the Audit of DBRL for FY 2015-16, the EP and the EQCR had failed to meet the relevant requirements of the Standards on Auditing (SA) and provisions of the Companies Act 2013 and showed serious lapses and absence of due diligence in the audit of several areas, including: a) The EP failed to exercise professional skepticism and judgement; perform appropriate audit procedures; and obtain sufficient appropriate audit evidence during audit of Rs 3,894.43 crores of guara....
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....we have limited the monetary penalty to Rs. 5 Lakh only since the violations relate to the year 2015-16. Therefore, we impose through this Order a monetary penalty of Rs five lakhs upon CA Chetan Desai; and Rs three lakhs upon CA Rakesh Rathi. In addition, they are debarred for a period of five years, and three years respectively 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. This Order will be effective after a period of 30 days from the issuance of this Order. B. INTRODUCTION AND BACKGROUND 5. National Financial Reporting Authority (NFRA) is a statutory authority set up under section 132 of the Companies Act 2013 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 under section 132 (4) of the Act to investigate for the prescribed classes of companies, the professional or other misconduct and impose penalty for proven professional or other misconduct of ....
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....t of professional duties. d) Failure to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion, and e) Failure to invite attention to any material departure from the generally accepted procedures of audit applicable to the circumstances. 10. The EP and the EQCR were initially allowed 30 days' time to submit replies to SCN. The EP sought an extension of six weeks for submission of reply to SCN which was allowed up to 24.05.2024. The SCN sent to EQCR at his postal address (as per record of ICAI) could not be delivered and thereafter he provided his new address where the SCN was duly delivered on 29.04.2024. He sought six weeks' time for submission of reply to SCN which was allowed up to 24.05.2024. The EP and the EQCR sought further extension of time up to 07.06.2024 for submission of replies to SCN which was also allowed. The EP and the EQCR submitted their respective replies to the SCN on 07.06.2024. In the interest of natural justice, an opportunity of personal hearing was provided to them on 16.07.2024, which they attended along with their legal r....
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....spective effect. (ii) The litigant has vested right in action but does not have any vested right on forum. (iii) Retrospective application in such procedural law and change in forum is barred only if express provision is made in new law. From this, we are of prima-facie view that Section 132 (4) of the Companies Act, 2013 can be applied retrospectively. ....7- We also take into consideration the fact that neither any new misconduct has been created in law, which NFRA can investigate and levy penalty, if required nor NFRA can levy penalty greater than the quantum of penalty envisaged under the Chartered Accountants Act, 1949." It is also noted that two appeals filed against the above NCLAT Order have been dismissed by the Hon'ble Supreme Court (Order dated 22.03.2024 in Civil Appeal No. 4518/2024 & Order dated 17.05.2024 in Civil Appeal No. 3656/2024). Therefore, according to Doctrine of Merger, NCLAT Order dated 01.12.2023 has become the Order of the Hon'ble Supreme Court. Therefore, there is no merit in the contentions of the EP and the EQCR. 14. They further contended that as per section 24 A (1) (iii) of the Chartered Accountants Act 1949....
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....lity of the Statutory Auditor to fully comply with the law and/or standards expected of a professional. NFRA's authority to monitor and enforce compliance with the accounting and auditing standards is only with reference to such standards as were established by law prevailing at the relevant time and were fully binding on statutory auditors. All the Standards on Auditing are a part of the law and are required to be mandatorily complied with from the date of their respective applicability, while conducting statutory audits. Hence, no new obligation is created on the EP and the EQCR by creation of NFRA as these standards were required to be mandatorily followed by them even prior to NFRA's establishment. Section 132(4) of the Act designates NFRA as the forum for determination of professional misconduct. The setting up of a new forum i.e., NFRA does not impose any new duties or obligations on Auditors. NFRA only evaluates their professional work in accordance with the Standards on Auditing and statutory requirements prevailing at the time of the audit. Therefore, there is no bar on NFRA's jurisdiction over the cases of professional or other misconduct committed prior to es....
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....xpressed that intention giving the statute retrospectivity. Four factors are suggested as relevant: (1) general scope and purview of the statute; (in) the remedy sought to be applied; (ii) the former state of the law, and (iv) what it was the legislature contemplated. (p. 388). " 21. A plain reading of the relevant provisions would show that Section 132(4)(a) of the Act confers upon the NFRA the power to investigate into the matters of professional or other misconduct committed by any member or firm of Chartered Accountants registered under the Chartered Accountants Act, 1949 in such manner as may be prescribed. The proviso to Section 132(4)(a) of the Act creates a bar on any other institute to initiate or continue any proceedings where the NFRA has initiated an investigation under this Section. This clearly implies that even for matters of professional or other misconduct committed prior to the coming into force of Section 132(4) of the Act, NFRA can initiate an investigation, which would disentitle any other institute such as the ICAI from continuing their proceedings in such matters of misconduct. The expression "such matters of misconduct" would clearly mean misconduct which....
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.... Rs 2,407 crores in the CFS were included in SFS. He also reported in his audit reports on SFS and CFS that these guarantees may adversely impact the functioning of the company. Mandatory audit procedures to evaluate this important matter was not done by the EP. A particular loan of Rs 225 crore, to a related party, for which DBRL had given a guarantee had been classified as NPA by the concerned banker in December 2015. But the Auditors had not taken cognizance of this fact. This is discussed in detail in paragraph 25 to 32 of this Order. • As pointed out in the SCN, while the EP had given a modified audit report on SFS on the basis of a matter of Rs 1.92 lakhs, he parked more important matters having monetary value of more than Rs 6,972 crores pertaining to investments, loans and advances, and corporate guarantees in Emphasis of Matter (EOM) paragraph of the audit report, again without performing mandatory audit procedures. • The SFS show total investments of Rs 2,456 crores and loans and advances of Rs 1,327 crores; which together constituted 90% of balance sheet size of Rs 4,218 crores. On the basis of the valuation reports, these investments, loans and....
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....he Independent Auditor and the conduct of an audit in accordance with Standards on Auditing; to perform appropriate audit procedures Para 18 of SA 330 - 'The Auditor's Responses to Assessed Risks'; and to obtain sufficient appropriate audit evidence Para 6 of SA 500- 'Audit Evidence' during audit of contingent liabilities arising out of guarantees given and securities of Rs 3,894.43 crores provided by DBRL to its related parties as per Standalone Financial Statements (SFS) of DBRL for FY 2015-16. The EQCR was charged with failure to exercise due diligence while evaluating the EP's judgement on this matter and violation of SA 220 Para 20 & 21 of SA 220 (Quality control for an audit of financial statements. 26. The EP and the EQCR denied these charges and stated that - • DBRL was the flagship/Holding company of the Group. The real estate projects for which the guarantees and securities were provided were being executed under various special purpose vehicles (SPVs), some of which were also in component entities. It is a normal feature when real estate projects get executed by the developers; • Real estate activities are exempted und....
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.... party, which became a NPA in December 2015, but the EP did not evaluate this matter. This matter ultimately resulted in initiation of Corporate Insolvency Resolution Process (CIRP) against DBRL by National Company Law Tribunal (NCLT). This matter is further discussed in paragraph 31 of this Order. 29. An Emphasis of Matter paragraph in the Audit report on CFS was made by the EP stating that guarantees and securities aggregating to Rs 2,406.79 crores given by DBRL to banks and financial institutions on behalf of various entities, were prejudicial to the interest of the company. In the SFS, there were guarantee/securities of Rs 3,894.93 crores, which were shown as contingent liabilities. On consolidation of financial statements, the guarantees/securities of Rs 2,406.79 crores remained as contingent liability and remaining guarantees/securities which pertained to subsidiaries/associates/jointly controlled entities, got eliminated as they showed up as actual liabilities in CFS. Thus, the guarantees/securities of Rs 2,406.79 crores shown in CFS as contingent liability were also included in the SFS as contingent liability. The EP reported in the Audit report on CFS that guarantees/se....
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....t whether the financial Statements present a true and fair picture. 30.2 The EP further contended that the parties (for whom guarantees/securities were given), do not fall within the provisions of section 189 of the Act. This reply of the EP digresses from the main point. We note that section 189 of the Act mandates a company to keep one or more registers giving the particulars of all contracts or arrangements to which sub-section (2) of section 184 (provisions relating to disclosure of interest by directors) and section 188 (provisions relating to related party transactions) applies. It is not understood how maintenance of registers by the Auditee company, would suffice for absence of the Auditor's audit work or an evaluation on his part of the guarantees/securities given by DBRL. The EP, being statutory auditor of DBRL, had access to all information relating to guarantees and securities provided by DBRL. The fact remains that he did not adequately evaluate the guarantees given and securities provided by DBRL to its related parties. After being charged for this lapse the EP in his additional reply dated 07.08.2024 stated that the reason for the guarantees being prejudicial ....
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....ting authorities under PMLA. Despite these facts on record, we do not find evidence of the EP's evaluation of this matter at the time of finalisation of audit report. Both, the EP and the EQCR, gave the same reply that inclusion of EoM paragraphs was their professional judgement and absence of documented evaluation in the Audit File does not necessarily imply a lack of due diligence. In the backdrop of these facts and the absence of evidence of evaluation of to how the guarantees given by DBRL might have had an adverse impact on DBRL's business, the reply of the Auditors is not accepted. 31. DBRL had disclosed the above guarantees/securities as contingent liabilities. As per AS 29 Accounting Standards 29 - Provisions, Contingent Liabilities and Contingent Assets, DBRL was required to estimate the outflow of resources, if any, to settle the obligation arising out of guarantees given and securities provided; and make provision in the books of accounts if a reliable estimate could be made of the amount of the obligation. DBRL did not make any provision on this account on the ground that guarantees and securities given by it were not expected to result in any financial liabi....
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....EP and the EQCR replied that DBRL had concluded that the guarantees and securities were not expected to result in any financial liabilities; component auditors did not report any specific comments regarding this matter (SA 600- Using the work of another auditor); it was their professional judgement that DBRL's decision to disclose guarantees and securities as contingent liabilities were appropriate; and given the uncertainties, absence of reliable estimate of a financial obligation, and lack of specific reporting from component auditors, no provision was warranted under AS 29. 31.3 PBPL was a wholly owned subsidiary of Marine Drive Hospitality and Realty Private Limited (MDHRPL). DBRL held 15.53% shares of MDHRPL. In addition, directors, KMPS, relatives of directors/KMPs and enterprises controlled by them held 62.51% of share capital in MDHRPL. DBRL had disclosed PBPL as a related party where the KMPs and their relatives have significant influence. Thus, it is clear that PBPL was not a component of DBRL for CFS, therefore the EP's reliance on the auditor of PBPL for this purpose, was inappropriate. Similarly, the guarantee and securities of total amount of Rs 2,406.79 cr....
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....l Auditor was required to verify records of the components or perform appropriate audit procedures in respect of these guarantees given and securities provided for borrowings of components. 31.6 The EP had replied that it was his professional judgement to accept management assertion to show the guarantees/securities as contingent liability. While respecting the professional judgement of the Auditor, we would need to see whether this judgement was based on any analysis. But the same was not evidenced in the Audit file. Absent this analysis for reaching a conclusion, a mere statement that it was his professional judgement does not absolve the Auditor of professional skepticism expected in such a case. 31.7 In respect of invocation of guarantee given by DBRL for a loan of Rs 225 crores given by Bank of India (BOI) to PBPL, the EP replied that the loan was secured by other securities such as (i) charge on fixed assets both present and future projects other than project land, (ii) charge on all current assets including receipts of all the receivables related to the respective projects, (iii) charge on all bank accounts, insurance contracts of respective company along with the comm....
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.... a modification of audit opinion. The EQCR was charged with failure to exercise due diligence while evaluating the EP's judgement on this matter and violation of SA 220 Para 20 & 21 of SA 220 (Quality control for an audit of financial statements. The facts of the matter, their replies and our evaluation are given hereafter. 34. The EP and EQCR denied this charge and replied that - (a) As per the partnership agreement of the Limited Liability Partnership (LLP) in which the DBRL was one of the partners, representatives of both partners had to sign the financial statements. However, due to a dispute between partners, only DBRL's representatives had signed the financial statements of the LLP. The share of profit of DBRL in this LLP was Rs 1.92 Lakhs which was recognised by the DBRL; (b) the decision to qualify the Audit Report for an item of Rs 1.92 lakhs was made after careful evaluation of its nature and the specific circumstances surrounding it; (c) SA 320 SA 320 - (Materiality in planning and performing an audit). mandates that materiality be assessed in the context of the financial statements as a whole, considering both quantitative and quali....
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.... Report on SFS that DBRL recognised Rs 1.92 lakhs as share of its profit in a Limited Liability Partnership based on unaudited financial statements of such LLP, as it was approved by only three partners representing DBRL out of six partners of the LLP. The Audit Report on SFS was qualified for an amount of Rs 1.92 lakhs which is less than the materiality limit of Rs 42 crores and 'clearly trivial amount' of Rs 84 lakhs determined by the EP. Further, Rs 1.92 lakhs is also not material keeping in view the DBRL's standalone profit of Rs 7.27 crores Profit before exceptional items and taxes and revenue of Rs 167.74 crores. Therefore, it is clear that the amount of Rs 1.92 lakhs is not quantitatively material to SFS of DBRL. It is also noted from the Audit file AWP-Form SA56G that the Auditor did not identify any misstatement in the SFS. 35.4 Coming to the qualitative aspect as claimed by the EP, it is noted from paragraph 6 of SA 320 that the auditor is required to consider not only the size but also the nature of uncorrected misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements. We note from the Aud....
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....ification were tucked away in the Emphasis of Matter paragraphs. 35.6 The EP and the EQCR further stated that their responses to the matters relating to Loans and advances, Investments and Corporate guarantees have provided a comprehensive explanation of the audit procedures performed in accordance with the standards on auditing; detailed documentation of the audit procedures performed and audit evidences obtained were maintained, supporting the conclusions reached in the audit report; and the decision to include EoM was guided by professional standards and the responsibility to provide an accurate and fair view to stakeholders. 36. These replies are not accepted as it has been proved in section C -I, C-III and C-IV of this Order that audit procedures performed and audit evidence obtained in the matters of Loans and advances, Investments and Corporate guarantees were deficient and not conforming to the relevant Standards on Auditing. Further, in respect of corporate guarantees, the Audit Report on CFS states that guarantees and securities given by DBRL were prejudicial to the interest of DBRL; and the Audit Reports on SFS as well as CFS state that guarantees given by DBRL may....
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....hin the respective SPV, thereby insulating the parent company and other projects from potential financial or operational issues specific to any project. • The exemption given to real estate companies from the provisions of section 186 of the Act acknowledges the capital-intensive nature of real estate projects, where loans/advances, investment and guarantees are necessary to initiate the project. • A negative net worth in the initial years of the projects does not necessarily indicate an erosion of net worth or impairment of the entity. • Valuation reports were reviewed and their reliability were assessed based on expertise and objectivity of experts; competence, capability and objectivity of experts were evaluated; and assumptions used in valuation reports were verified. • The Firm was not the Auditor for most of the subsidiaries, joint venture and associate entities; and that the component auditors gave clean audit reports on 'going concern'. The charges and replies of the EP are evaluated hereunder. 39. The majority of the loans and advances made by DBRL were long outstanding. Some companies to whom the loans were....
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....n support of having evaluated valuation reports, do not have appropriate evidence of evaluation of valuation reports except a list containing name of the project, name of valuer and the amount as per valuation reports; and a general remark that "We have reviewed valuation report of properties held by these companies and found that valuation of these properties are higher than the exposure made to the extent available". There is no evidence about evaluation of the basis of valuation, how the fair value was determined, reliability of data used for valuation and appropriateness of the assumptions used in the valuation reports. Further, there is no evidence in the Audit File about evaluation of competence, capability and objectivity of valuation experts. Such evaluation is important as mentioned in paragraph A37 of SA 500 that the competence, capabilities and objectivity of a management's expert, and any controls within the entity over that expert's work, are important factors in relation to the reliability of any information produced by a management's expert. Similarly, paragraph A48 of SA 500 provides guidance that considerations when evaluating the appropriateness of ....
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....e review work done by the EQCR, therefore this reply is not accepted. 40.3 The EQCR took the stand taken by the EP regarding business model, gestation period, exemption u/s 186 of the Act, and replied that there was no concern with regards to the recoverability of loans and advances; considering exemption u/s 186 of the Act; and additional comfort provided by the valuation reports, he concurred with the decision of the audit team. This reply is not accepted in view of evaluation of the EP's reply at paragraph 39 of this Order and is not repeated for the sake of brevity. It is also noted that specific details of work done by EQCR are not available in the Audit File. 41. From the above, the charges regarding lapses in audit of loans and advances, as detailed in paragraph 37 above, are proved. IV. Lapses in audit of Investment made by DBRL 42. The EP was charged with failure to perform appropriate audit procedure and to obtain sufficient appropriate audit evidence during the audit of investment of Rs 2,456 crores (non-current investment of Rs 2,370.2 crores and current investment of Rs 85.8 crores) made by DBRL in its Subsidiaries, Associates, Joint Venture and Others ....
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.... crores in sixteen subsidiaries and associate companies having total negative net worth of Rs 69 crores AWP SA 41 Investment (Pg-21) as on 31.3.2016. It is recorded in the Audit File that (i) some of the companies in which investments were made were having negative net-worth; (ii) the Company had provided valuation report for the projects undertaken by these companies; and (iii) based on valuation report and assessment of management, there was no impairment in the value of these investments. Even in respect of the companies having negative net worth, appropriate audit procedures were not performed to evaluate whether there was any impairment in the value of investments. Thus, they were charged with lack of diligence and professional skepticism. 44.2 The EP replied that the Engagement Team (ET) verified that investment was valued as per AS 13 and the accounting policy of DBRL; financial statements and audit reports were verified; negative net worth was noticed; and valuation reports were reviewed. On perusal of first AWP Page 37 & 38 of AWP SA 41 cited by the EP, it is found that such audit procedure was performed for investment of Rs 1.89 crores only (out of total investment of ....
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.... for confirmation of balances of account/ financials of relevant entities. On perusal of AWP Page 30 of SA 41 cited by the EP, it is noticed that copies of current account and financials of these companies were verified but the bank statements of DBRL were not verified to authenticate movement of funds to/from DBRL. The EP vide email dated 07.08.2024 stated that as part of the audit strategy, the Audit team verified Page 82 & 84 of SA 42 Loans (Assets) bank statements on a sample basis of payments and receipts to/from various companies against loans and advances. He further stated that as per generally accepted auditing practices, there is no necessity to keep the supporting documents such as bank statements in the Audit File. From this reply, it is clear that audit procedure for verification of bank statements was not performed in respect of movement/ change in investment. It is important to note that Rs 270.14 crores was deposited in and Rs 331.36 crores was withdrawn from the 'members current account' with TEJV. In such situation. to rule out the possibility of misuse of funds through a related party, a prudent auditor should verify relevant bank statements, which was no....
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....P failed to perform appropriate audit procedures; failed to obtain sufficient appropriate audit evidence during audit of investment; and thus, violated paragraphs 15 & 16 of SA 200, 5 of SA 315, 5 of SA 330, 6 & 8 of SA 500, 17, 18 and 21 of SA 540 and 18 of SA 550. The EQCR failed to exercise due diligence while evaluating this matter, and thus has violated provisions of paragraphs 20 & 21 of SA 220. V. Failure to perform duties of Engagement Partner 47. The EP was charged with failure to perform duties of Engagement Partner in engagement performance during audit of DBRL as he did not direct and supervise the audit of DBRL Para 15 of SA 220 (Quality Control for an Audit of Financial Statements). The details of the violations are explained hereafter. 47.1 As per definition of Engagement Partner Para 7(a) of SA 220, the EP was responsible for the engagement and its performance, and for the report issued on behalf of the audit firm. The EP was required to take responsibility for inter alia the direction, supervision, and performance of the audit engagement in compliance with professional standards and regulatory and legal requirements Para 15 of SA 220. 47.2 However, ther....
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.....2016 to 20.05.2016 may not be explicitly documented. The EP further replied that he had reviewed AWP nos. SA 16, SA 21, SA 29, SA 29A, SA 30, SA 55A, SA 56H and SA 57D. According to him, he had signed all the AWPs required to be signed by the EP as per the Firm's audit methodology and if other AWPs do not bear his signature, it does not mean that he was not involved in entire audit. 49. We note that the Audit File has no evidence of the EP's direction and supervision of the audit work between 14.03.2016 to 20.05.2016 when major work of audit procedure i.e. test of controls and substantive tests were performed. It is important to note that the EP did not plan to review important areas of loans and advances (Rs 1,326.92 crores), investments (Rs 2,456 crores) and guarantees/securities (Rs 3,894.43 crores). It is relevant to note that EP's direction and supervision of the audit work is crucial in (a) tracking the progress of the audit engagement; (b) evaluating whether the audit work is being carried out in accordance with the planned approach to the audit engagement; (c) identifying matters for consultation by more experienced engagement team members during the audit e....
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....dent, (details are at para 49), during the crucial period when major part of the audit was done and this resulted in significant deficiencies in audit performance as discussed in section C-I to C- IV of this Order. Had he really been involved throughout the audit process, then these significant deficiencies would, possibly, not have been occurred. Thus, it is proved that the EP neither directed nor supervised the audit of DBRL for FY 2015-16 and violated para 15 of SA 220. VI. Lapses in Engagement Quality Control Review 51. The EQCR was charged with a failure to perform appropriate review of significant judgements made by the engagement team as is evident from section C-I to C-IV of this Order. The EQCR was charged to have violated paragraph 20 of SA 220 which required him to perform an objective evaluation of the significant judgements made by the audit team and the conclusions reached in formulating the auditor's report. Paragraph 21 of SA 220 inter alia required him to consider whether audit documentation selected for review reflects the work performed in relation to the significant judgements made and supports the conclusion reached. 52. The EQCR denied this charge....
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....ues Memo, SA 56G-Summary of Unadjusted Misstatements, and SA 58B-TCWG and Management. Further, there is no evidence about the nature of review done by him, and what suggestions or objections were given by him to the EP. It is further noted that deficiencies in audit highlighted in section C- I to C -IV of this Order prove that the EQCR did not exercise due diligence in reviewing significant judgement of the EP. 54. In view of the above, it is proved that the EQCR failed to perform appropriate review of significant judgements made by the engagement team and the conclusions reached in formulating the auditor's report, and thus he violated paras 20 & 21 of SA 220. Similar misconducts have been viewed seriously at international level 55. In the matter of L&L CPAs, PA, Weixuan Tracy Luo, CPA, Andy Chow, CPA, and Robert Kinzer, CPA, PCAOB (PCAOB) Release No. 105-2024-033 June 10, 2024 (US Audit Regulator) observed that "If an auditor uses the work of a specialist, employed or engaged by an issuer client, as audit evidence to support a conclusion regarding a relevant assertion of a significant account or disclosure, the auditor has certain responsibilities. Among other things....
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....AOB) Release No. 105-2012-001 February 8, 2012, for charges including violations of auditing standards related to the audit of financial statements of Medicis Pharmaceutical Corporation and subsidiaries, imposed civil money penalties of $2,000,000 to the firm Ernst & Young LLP, $50,000 to Jeffrey S. Anderson, the Partner with final responsibility of the subject matter audit engagement, $25,000 to Robert H. Thibault, the independent review partner, and $25,000 to Ronald Butler, the second partner, supervised by Anderson. The partners were also barred from being associated with a registered public accounting firm. D. FINDINGS ON ARTICLES OF CHARGES OF PROFESSIONAL MISCONDUCT 59. As discussed, the EP and the EQCR have made a series of serious departures from the Standards and the Law, in conduct of the audit of DBRL for FY 2015-16. Based on the above discussion, it is proved that they had failed to exercise due diligence in performance of this audit. Based on the foregoing discussion and analysis, we conclude that the EP and the EQCR have committed Professional Misconduct as defined under Section 132 (4) of the Companies Act 2013 in terms of section 22 of the Chartered Accountan....
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....CR mislead the users of financial statements by qualifying the audit report for an immaterial amount of Rs 1.92 lakhs while not performing adequate audit procedures in respect of many material items amounting to more than Rs 6,972 crores and parked them aside in Emphasis of Matter paragraphs. Various lapses as noted above in the Order were made by the auditors with respect to audit of contingent liabilities arising out of guarantees given and securities provided by DBRL to its related parties, loans and advances given, and investment made by DBRL. The EP failed to effectively direct and supervise the audit. The EQCR failed to perform objective evaluation of the judgements made by the audit team. They both failed to conduct the audit as per Standards on Auditing. 62. As detailed in this Order, substantial deficiencies in Audit, abdication of responsibility and inappropriate conclusions on the part of the EP and the EQCR establish their professional misconduct due to lack of due diligence and gross negligence. Despite being qualified professionals, they have not adhered to the Standards and have thus not discharged the statutory duty cast upon them. 63. Section 132(4)(c) of the....