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A CA was held guilty by NFRA for professional misconduct as Engagement Partner in statutory audit of ILFS Financial Services Ltd. for 2017-18.
The charge was in terms of Section 132(4) of the Companies Act, 2013.
There were also charges in terms of the clauses mentioned below in Part I of the Second Schedule to the Chartered Accountants Act, 1949:
| Serial No. | Clause | Charges |
| 1 | 5 | Failing to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary for making such financial statement where he is concerned with that financial statement in a professional capacity. |
| 2 | 6 | Failing to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity. |
| 3 | 7 | Not exercising due diligence, or is grossly negligent in the conduct of his professional duties. |
| 4 | 8 | Failing 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. |
| 5 | 9 | Failing to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances. |
The CA filed a Writ Petition in pursuance to which Delhi High Court passed an Order. Consequently, the order passed by NFRA shall be no given effect till 31st July 2020 (Friday).
NFRA furthered the proceedings in pursuance of Show Cause Notice for already providing adequate time to the CA to file a response. The High Court granted no stay.
All the charges were on account of violations of the Standards on Auditing and consequent violations of the Companies Act, 2013, and Code of Ethics.
The Standards on Auditing involved were:
The CA argued that the words “Gross Negligence” have not been defined in the Chartered Accountants Act, 1949.
Subsequently, the NFRA noted that this remark on Clause 7 of Part I of the Second Schedule issued by the ICAI states that - negligence per se DOES NOT constitute gross negligence, and thus DOES NOT amount to professional misconduct.
Any professional accountant would be liable for misconduct only if his actions amount to culpable negligence, which would justify holding him guilty for gross negligence.
According to the NFRA, every auditor is obliged to comply with the Standards on Auditing. The failure would consequently amount to the mentioned culpable negligence.
The CA also argued delegating the key tasks to his partner. However, no evidence of such delegation was found. Neither did any record show that this CA was the Engagement Partner. He violated SA 220 and SQC - 1 by signing the audit report on behalf of the audit firm.
Finally, NFRA held the charges of professional misconduct as evidently proved.
The CA had been Managing Partner and CEO of Deloitte India for years. A person in his position with a record of long experience is expected to take full responsibility for his actions. The reason behind this is the fact that his actions affect not only his independence but also the independence of the organization which has clearly been compromised.
Despite being the Engagement Partner, the CA failed to maintain the quality of auditing. He lacked the features required in a person to be an efficient auditor. An unbiased mind, quick action, due diligence, and professional scepticism were nowhere to be found. This kept on building up to the final doom where there was no turning back.
A CA in such a high position is trusted by most of the people. However, a breach of trust has now left the public and investors shocked. People work day and night to earn money and invest the same placing their trust in someone. And this kind of shock-wave has left them speechless. Therefore, it is important that the punishment matches the crime.
The professional misconduct by this gentleman has proved to be very serious. The fact that he'd act recklessly without even taking the provisions of Standards on Auditing into consideration is quite questionable. This kind of behaviour is most certainly intolerable in our field of profession.
The audited company, in this case, had clearly incurred losses in the year 2017-18. However, the value of Rs 184 crores to the Put Option on the TTSL shares have been very strategically via unfair means transformed into reported profits. The company deliberately ceased to comply with NOF/CRAR norms. The CA continued proceeding with his fraudulent activities which required an immediate reaction and a severe penalty.
Kajol Agarwal
A learner.