NFRA Imposes Monetary Penalties on Auditors for Failing to Exercise Due Diligence in Audit of a Public Interest Entity
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- Last Updated on 22 January, 2025
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Case Details: Deloitte Haskins & Sells LLP, In re - [2025] 170 taxmann.com 328 (NFRA)
Judiciary and Counsel Details
- Dr Ajay Bhushan Prasad Pandey, Chairperson, Dr Praveen Kumar Tiwari & Smita Jhingran, Full-Time Member
Facts of the Case
In the instant case, Deloitte was appointed as the statutory auditor of the company ZEEL for the financial year 2018-19 and 2019-20. The NFRA suo motu examined the Audit File for the statutory audit of ZEEL to assess whether the auditor committed any professional misconduct as defined under Section 132 (4) of the Companies Act, 2013.
Based on the examination of Audit Files, and responses of the Audit Firm to queries and other records, it was opined that the Auditors had not discharged their· professional duties under the Act as well as the Standards on Auditing (SA).
Consequently, an SCN was issued to the Auditors asking them to show cause why action under Section 132(4) of the Act should not be initiated against them for professional misconduct.
It was noted that the auditors did not exercise due diligence in ensuring the audit quality expected in an audit of a public interest entity and were grossly negligent in the conduct of professional duties by not adhering to the requirements as laid down by the relevant statutes.
NFRA Held
The NFRA held that the auditors’ conclusion that they did not have reasons to believe that fraud was committed by the officers of the Company was not supported by sufficient appropriate audit evidence.
Further, the NFRA held that the auditors’ failures in the audit amounted to professional misconduct as per Section 132 (4) of the Act. Therefore, charges of professional misconduct in SCN were established. Also, monetary penalties were to be imposed on the auditors.
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