The National Financial Reporting Authority (NFRA) has imposed fine and one-year ban on four auditors for alleged professional misconduct in connection with audit of branches of Dewan Housing Finance Corp Ltd (DHFL) in 2017-18.
DHFL (now known as Piramal Capital and Housing Finance Limited) is a listed entity, owned and controlled by the Piramal Group.
In four separate orders, the NFRA imposed a fine of ₹1 lakh each on the auditors – Mathew Samuel, Sam Varghese, Harish Kumar TK and M. Bhaskaran. The auditors are partners of the audit firm Varghese & Co.
In addition, all of them were debarred for a period of one year from conducting any audit in relation to the financial statements or internal audit of the works and activities of any company or body corporate during the ban period, the order said. .
“Investigation conducted by NFRA revealed prima facie evidence that the branch auditors had violated both the Companies Act, 2013 and the Chartered Accountants Act, 1949 by accepting the appointment, lack of valid approval and SAS while conducting the branch audit. was also violated, NFRA said.
Following allegations of embezzlement of about ₹31,000 crore of public money, the Enforcement Directorate in April 2020 reported an operation against the alleged bank fraud of about ₹3,700 crore by the promoters/directors of DHFL.
Subsequently, NFRA had commissioned an Audit Quality Review (AQR) conducted by Chaturvedi & Shah (CAS) firm to examine the role of statutory auditors of DHFL for the financial year 2017-18.
During the review, NFRA observed that 33 Engagement Partners (EPs) or branch auditors had signed “Independent Branch Auditors’ Report” for around 250 branches of DHFL.
Further, NFRA probed K Varghese & Co. (audit firm), which was the “Statutory Branch Auditor” of 17 branches of DHFL for the financial year 2017-18, Mathew Samuel, Sam Varghese, Harish Kumar TK and M. Baskaran, partner in the firm for audit of several branches of its housing finance company.
According to the order, an investigation by NFRA revealed that the appointment of none of the 33 branch auditors was approved at the Annual General Meeting (AGM) of DHFL, as required by the Companies Act.
As per NFRA, the auditors portray themselves as “Branch Statutory Auditors” in all communication with DHFL and CAS and issue “Independent Branch Auditors’ Report”.
By doing so, the auditors not only accepted a legally invalid appointment but also violated the provisions of the Chartered Accountants Act (CA Act) which required to ensure valid appointment as per norms.
The regulator also examined the auditors’ compliance with the Standards on Auditing (SA) in the performance of branch audits of DHFL.
It was discovered that the auditors did not comply with the laws under the Standards on Auditing, and did not maintain proper audit documentation and displayed erroneous understanding and interpretations of various terms in the law and the Standards in an unprofessional manner used to establish his professional misconduct, the NFRA said.