Coming down heavily on a chartered accountant (CA) for negligent review, failure to apply professional skills and lack of sufficient experience while working as an engagement quality control (EQC) partner for the audit of a listed company, the National Financial Reporting Authority (NFRA), barred CA Apoorve Bansal, the ECQ reviewer of SVP & Associates for one year. NFRA also imposed a fine of Rs1 lakh on the CA.
In an order earlier this week, the bench of Dr Ajay Bhushan Prasad Pandey (chairperson), Dr Praveen Kumar Tiwari and Smita Jhingran (full-time members) says, "The EQC reviewer (CA Bansal) was found to be negligent in several areas of audit and failed to apply professional skills and due diligence sufficiently and adequately to critically evaluate the work of the engagement partner (EP- CA Pankaj Kumar) and the engagement team (ET). The EQC reviewer, though a chartered accountant, was also not experienced enough to undertake the quality review and failed to assess the working papers related to important issues in the audit, viz., evaluation of going concern basis, suspected fraud, and setting of materiality."
NFRA initiated action against the CA following a letter from the serious fraud investigation office (SFIO) of the government of India, which had investigated the affairs of SRS Ltd and its group companies. In the letter, SFIO stated that SRS and its group companies presented falsified financial statements containing a falsified statement of debtors and adopted the malpractice of round-tripping and layering of transactions, resulting in inflated purchases and sales in the audit report for the financial year (FY)17-18. SFIO also levelled charges against the auditors of SRS and its group companies.
During the hearing, the audit regulator observed that there is no evidence in the audit file showing any review of the working papers and any evaluation done by the EQC reviewer to support the conclusions reached by the ET or any areas of his disagreement with the ET. "For instance, the independent audit report contained qualified opinions in respect of the going concern, but there is nothing in the audit file to show that the related working papers were reviewed by the EQC reviewer (CA Bansal). Further, there is no evidence in the audit file that the draft audit report and other important working papers like audit plan, programme and setting of materiality were reviewed by the EQC reviewer as none of these working papers bears the date of review and signature of the EQC reviewer."
In April this year, NFRA slapped a fine of Rs3 lakh each on SRS auditors—Pankaj Kumar and Naresh Kumar and debarred them for three years from undertaking any audit. The audit regulator had also held in that same order that the EP had failed to show evidence of the appointment of an EQC reviewer for the audit.
However, during the recent hearing of EP's case, NFRA refused to accept the defence of EQC partner CA Pankaj Kumar, who the audit regulator felt had, in a sense, indicted himself by holding out to be the quality control partner, although it was not documented.
It also observed that the EQC reviewer with only two years of experience has claimed to have reviewed the work of an EP (CA Pankaj Kumar) with 32 years of experience. "The inexperience of CA Apoorve Bansal is reflected in the fact that he accepted a 'verbal appointment' as an EQC reviewer. The reply clearly establishes his ignorance of the importance of his assignment of the EQC reviewer and the casual approach in taking up the said assignment."
The audit regulator also held CA Bansal, with two years post qualification experience, guilty of accepting the assignment in violation of SA 220, which mandates that the EQC reviewer must possess sufficient and appropriate experience and authority.
NFRA further admonished the CA for lack of evidence to demonstrate the review of working papers while rejecting his defence that the deficiency is not attributable to him but to EP.
"The work of EQC reviewer is not separately identifiable from that of the EP or ET, which raises serious doubts on the performance of his statutory obligations and proves his acquiescence in the deficient work performed by the EP and the ET," the audit regulator says.
Further, NFRA held CA Bansal guilty of failing to comply with the quality control manual of the audit firm of which he was a part. It says, "The EQC reviewer failed to meet the qualifications of the engagement quality reviewer, failed to review the EQR process, with special emphasis on the evaluation of significant judgments and responses to significant risks and failed in the documentation of procedures performed to support the review and concurring approval of report issuance. We find the EQC reviewer failed to exercise due diligence and was grossly negligent in the conduct of his professional duties by not adhering to the requirements as laid down by the relevant statutes."
SRS Ltd, a listed entity and one of the companies of SRS group, went under the corporate insolvency resolution process (CIRP) in August 2018 following an order issued by the national company law tribunal (NCLT).