DHFL: NFRA Tears Apart Statutory Auditor's Work, Debars 2 CAs with Rs5 Lakh Penalty Each
Moneylife Digital Team/ IANS 08 December 2023

Coming down heavily on two chartered accounts (CAs), one of them who worked as an engagement partner (EP) for professional misconduct while conducting a statutory audit of Dewan Housing Finance Corporation Ltd (DHFL) for FY17-18, the national financial reporting authority (NFRA) barred them for 10 years and five years and imposed a penalty of Rs5 lakh each. The CAs are Jignesh Mehta, who was EP, and Amit Vinay Chaturvedi, the engagement quality control review partner (EQCR) for the DHFL audit. Both the CAs are partners of Chaturvedi and Shah LLP.

In an order, the NFRA bench of Dr Ajay Bhushan Prasad Pandey (chairperson), Smita Jhingran and Praveen Kumar Tiwari (full-time members) says, "...the EP (CA Mehta) failed to meet the relevant requirements of standards of auditing (SAs) and violated the Companies Act in respect of several significant areas of audit...the EP was found to be grossly negligent and failed to apply professional scepticism and due diligence sufficiently and adequately to challenge the management assertions."

NFRA conducted an audit quality review after media reports on the alleged siphoning of public money to the tune of Rs31,000 crore by the directors of DHFL.

Underscoring that EP failed to obtain sufficient audit evidence regarding the appropriateness of management's use of the going concern basis of accounting in the preparation of financial statements, NFRA elaborates that Section 134(5) of the Act requires the board to state specifically in its report that 'the annual accounts are prepared on a going concern basis'. The EP was required to obtain the basis for such an assessment by the management and to evaluate the entity's ability to continue as a going concern, but instead of doing so, the EP, based on his knowledge, concluded that the company is a going concern, the authority says.

DHFL operates through a network of about 250 branches across India. For FY17-18, Chaturvedi and Shah LLP was appointed as the company's statutory auditor in the company's annual general meeting (AGM). In his independent auditor report, CA Mehta, the EP, stated that the reports on the accounts of the branch offices of DHFL audited under Section 143 (8) of the Act by branch auditors had been properly dealt with by him while preparing the audit report. The audit report also stated that the audited financial statements incorporated the returns for the year ended on the date audited by the branch auditors of the company's branch offices at 250 locations.

However, NFRA says there is no evidence in the audit file to establish the existence of legal appointments of any branch auditor by the AGM and that Chaturvedi and Shah LLP has carried out the audit of the entire company, including all its 250 branches. "In total dereliction of his duty, the EP relied on the illegally appointed branch auditor's reports, which were made in violation of the SAs."

NFRA also observed that CA Mehta, the EP, failed to ensure that the financial statements were prepared in all material respects, following the applicable financial reporting framework. Thus, "The audit opinion issued by the EP is therefore baseless."

In a separate order, NFRA says, "The EQCR partner (CA Chaturvedi) failed to objectively evaluate and question the EP when the EP failed to meet relevant requirements of the SAs and violated the Act and the code of ethics...The major lapses included false reporting in the independent auditor's report about the audit of branches, failure to report material misstatements in the consolidated financial statements (CFS), failure to examine non-compliance with directions issued by National Housing Bank (NHB), failure to verify internal financial controls, failure to access the risk of material misstatements, failure to evaluate the going concern assumptions and failure to verify the related party transactions."

NFRA has issued several orders earlier as well against auditors of DHFL who carried out audit work for the company.

DHFL became a defaulter in May 2019, and the banks classified it as a non-performing asset (NPA) between October and December 2019 and then declared it as 'fraud' from March 2020 onwards.

The Union Bank of India (UBI), leader of a 17-bank consortium, including the IDBI Bank, had lodged a complaint against the DHFL, Wadhawan siblings and others who allegedly hatched a criminal conspiracy to defraud the banks of a staggering amount of around Rs43,000 crore.
Based on the UBI's complaint, central bureau of investigation (CBI) filed its first information report (FIR) in June 2022 against the Wadhawans, DHFL and others.
CBI had said that the plot by the accused Wadhawan brothers and others induced the consortium of banks, mostly public sector banks (PSBs), to release huge loans totalling Rs42,871.42 crore.
A significant portion of the loans was allegedly siphoned off or misappropriated by falsifying the DHFL's books of accounts, dishonestly defaulting on the repayments to the lenders and causing a wrongful loss of Rs34,615 crore.

You may want to read our coverage of the DHFL issue here...

6 months ago
I know a CA in Mumbai involved in benami account and benami property.
6 months ago
No news about the interest payment and also what is the status of amount which not been given
6 months ago
Still no update on Fd holders Principal amount
6 months ago
Will the dhfl shares now Piramal capital get back
6 months ago
I have 16000 shares @ 52 rs/ now half 8000 volume is visible in my holdings as Piramal Capital but rest is vanished ..stuck like no other way .. pls help me to get out of it ..
Kamal Garg
Replied to goswamishruti07 comment 6 months ago
It cannot happen. Piramals' resolution proposal was very clear that the "existing share capital of DHFL will be completely written, extinguished and delisted" and the same proposal was approved by CoC and by NCLAT. And therefore question does not arise that your 8000 shares are showing in your demat account in the name of Piramal Capital Ltd. In my opinion, it should be zero.
Replied to Kamal Garg comment 6 months ago
8000 is in my holdings and Not in my demat .. my question remains same will i get something
6 months ago
DHFL did fraud no account of my share s worth more than one lakh rupees, I will never brought any product of Piramal group who is main culprit,,,,,in my cognisance .
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