The National Financial Reporting Authority (NFRA) has penalized two auditors, Chetan Desai and Rakesh Rathi of Haribhakti & Co LLP, for professional misconduct during the audit of DB Realty (now Valor Estate Ltd) for FY 2015-16. Desai was fined INR 5 lakh and banned for five years, while Rathi received a INR 3 lakh fine and a three-year ban. The NFRA uncovered lapses, including failure to scrutinize INR 3,894.43 crore in guarantees and inadequate review of loans worth INR 1,326.92 crore, mostly to related parties. This action underscores NFRA's commitment to enhancing accountability in financial reporting and upholding auditing standards in India.
The National Financial Reporting Authority (NFRA) has imposed penalties totaling INR 8 lakh on two auditors and has barred them from auditing for up to five years due to professional misconduct linked to the audit of DB Realty (now Valor Estate Ltd) for the financial year 2015-16. This decision follows information received from the Securities and Exchange Board of India (SEBI) in October 2022, which indicated significant misstatements in DB Realty's financial statements.
The NFRA's investigation began after concerns were raised about the accuracy of DB Realty's financial reporting. The authority found that Chetan Desai and Rakesh Rathi, partners at the audit firm Haribhakti & Co LLP, failed to adhere to necessary auditing standards. Desai was fined INR 5 lakh and barred from auditing for five years, while Rathi received a INR 3 lakh fine and a three-year ban. This action highlights the NFRA's commitment to maintaining integrity in financial reporting and auditing practices.
The NFRA's order revealed serious lapses in the audit process. Desai was found to have not exercised sufficient professional skepticism or judgment, particularly regarding INR 3,894.43 crore in guarantees and securities provided by DB Realty to related parties. Furthermore, he did not adequately review loans and advances totaling INR 1,326.92 crore, of which INR 1,079 crore was extended to related parties, many of which reported negative net worth. The NFRA emphasized that Desai's role was limited to planning and reviewing financial statements without proper involvement in critical audit areas.
Rakesh Rathi's shortcomings were also noted, as he failed to conduct an appropriate review of significant judgments made by the audit team. This lack of oversight contributed to the overall deficiencies in the audit process, raising questions about the effectiveness of the firm's internal controls and quality assurance measures.
This case is part of a broader trend of increasing scrutiny on auditors and their firms in India. The NFRA was established to enhance the quality of financial reporting and auditing, ensuring compliance with the Companies Act of 2013. The authority has been actively pursuing cases of professional misconduct and has taken steps to improve the accountability of auditors.
The implications of this ruling extend beyond the individuals involved. It serves as a reminder to all auditors about the importance of maintaining high standards in their work. The financial industry is under constant pressure to provide accurate and reliable information, and any lapses can lead to significant consequences for companies and investors alike.
As the NFRA continues its efforts to uphold auditing standards, it is likely that more cases will emerge, emphasizing the need for auditors to remain vigilant and thorough in their work. The financial sector must prioritize transparency and accountability to restore public trust and ensure the integrity of financial markets.
In conclusion, the NFRA's actions against Chetan Desai and Rakesh Rathi reflect a growing commitment to enforcing professional standards in auditing. As the regulatory landscape evolves, auditors must adapt to these changes and uphold their responsibilities to clients and stakeholders.
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