NFRA bars CA from Corporate auditorship for 3 yrs for not reporting non-recognition of interest costs on NPA borrowings
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- Last Updated on 16 September, 2022
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Case Details: In the case of CA Som Prakash Aggarwal - 142 taxmann.com 272 (NFRA)[12-09-2022]
Judiciary and Counsel Details
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- Dr Ajay Bhushan Prasad Pandey, Chairperson, Praveen Kumar Tiwari & Smita Jhingran, Member
Facts of the Case
In the instant case, the NFRA had received information from the SEBI in the case of Vikas Wsp Limited (VWL) wherein it was stated that the company did not recognise the interest amount in its borrowings from the bank in the P&L account which lead to the overstatement of profits.
A show cause notice on the Engagement Partner of the statutory auditor by NFRA as to why the interest cost on borrowing was not recognised.
NFRA Held
The NFRA held that the Engagement partner was guilty of Professional Misconduct under the Chartered Accountants Act, 1949 (CA Act, 1949) for not disclosing in his audit report the non-recognition by the company in its financial statements of interest costs in respect of borrowings classified by lender banks as NPA based on non-charging of interest by lender banks on such NPA borrowings. The non-recognition was based on the mere proposal by the company of One Time Settlement with banks based on the mere assumption that banks will waive off interest.
The CA was held guilty of professional misconduct as he failed to conduct audit in accordance with Auditing Standards, including non-compliance with requirements of SA 230 regarding Audit Documentation, relying on Management Representation Letter (MRL) not obtained on letterhead, non-documentation by minutes of meetings with management regarding discussions on non-recognition of interest cost and OTS and not getting audit reviewed under ECQR(Engagement Quality Control Review) before issuing audit report.
The NFRA further imposed a monetary penalty of Rs 3 Lakhs on CA and debarred him for 3 years from being appointed as auditor/internal auditor of any company/body corporate. Further, he was advised to take training in SAs and Ind As due to his poor knowledge of the same.
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