Authority imposed fine of Rs2 crore on Shridhar & Associates, Rs50 lakh on Ajay Vastani in Reliance Commerical Fin case
New Delhi: National Financial Reporting Authority (NFRA) has slapped penalties totalling Rs2.5 crore on two auditors for professional misconduct and auditing lapses in the Reliance Commercial Finance case for FY2018-19.
The audit regulator imposed a fine of Rs2 crore on Shridhar & Associates and Rs50 lakh on Ajay Vastani.
In addition, the regulator also barred Vastani for 5 years from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
The order came after the corporate affairs ministry informed NFRA that Price Waterhouse & Co Chartered Accountants LLP (PW) had filed a report to the ministry under the Companies Act, 2013.
Thereafter, PW resigned as the auditor of RCFL, without issuing an audit report for FY 2018-19. Further, Shridhar & Associates was appointed by the board of directors of RCFL in June 2019 as the statutory auditor of the company.
On examination of the audit file of RCFL conducted by Shridhar & Associates, “we were of the prima facie view that the auditors had not discharged their professional duties under the act as well as the standards on auditing (SA)”, NFRA said in the order dated May 16.
Consequently, a show cause notice was issued to the auditors under the rules for professional misconduct.
The auditors endorsed the company’s legal interpretation that there was no fraud and based on that dismissed any suspicions of fraud even while the matter was pending with the ministry.
The auditors (Shridhar & Associates and Ajay Vastani) also did not perform the audit procedures to ensure the reasonability of the expected credit loss provision of Rs537 crore on loans of Rs12,224 crore, the regulator said.
Despite being aware of the report of suspected fraud by the previous auditor, the engagement partner (Vastani) stated in the audit report that there were no matters falling.
Therefore, the audit report to the members was misleading.
The auditors also failed to adequately examine the end-use of loans, indications of siphoning of funds from RCFL, management override of controls, and the business rationale of sanctioning and disbursing loans by the company.
Despite the resignation of the previous auditor and a reporting of suspected fraud, the auditors failed to conduct the audit as per the standards on auditing, the order stated.
The material misstatements in the financial statements due to inadequate provision, unjustified valuation of loans and irrational business practices were concurred by the auditors in disregard of their responsibilities under the Act and SAs, it added.
