The NFRA has penalized and debarred 18 auditors for lapses in auditing branches of DHFL, a housing finance company. Fines totalling Rs 18 lakh, with Rs 1 lakh imposed on each auditor, have been levied for professional misconduct. The auditors are also barred from roles as auditors, internal auditors, or conducting relevant audits for periods ranging from six months to one year. This action follows reports of alleged financial improprieties involving DHFL. The SEBI simultaneously imposed Rs 6 crore in penalties on 15 entities, including former DHFL promoters, for disclosure norm violations.
The National Financial Reporting Authority (NFRA) has taken assertive measures against 18 auditors involved in scrutinizing various branches of the housing finance giant, DHFL. Their actions have resulted in penalties and temporary prohibitions due to their inadequacies in the auditing process. In a series of 18 distinct rulings, the auditors are now facing fines amounting to a cumulative Rs 18 lakh, with each auditor being held accountable for professional misconduct and bearing a fine of Rs 1 lakh.
Moreover, they have been disqualified from holding the positions of auditors or internal auditors, and they are barred from undertaking any audits related to the financial statements or internal audit functions of any company or corporate entity. The duration of these prohibitions varies, with some auditors facing a suspension of six months while others are restricted for a year. The catalyst for these actions was a string of media reports that alleged the misappropriation of approximately Rs 31,000 crore in public funds and the subsequent investigation by the Enforcement Directorate into an alleged banking fraud totalling around Rs 3,700 crore. These investigations came to light in April 2020.
Responding to these developments, the regulatory body, NFRA, initiated a proactive Audit Quality Review (AQR) to delve into the roles played by the Statutory Auditors of DHFL during the fiscal year 2017-18. This specific year was of critical interest due to allegations that the primary fraud incidents occurred during this period, according to the NFRA's orders, which were dated September 29. The NFRA's investigative efforts revealed several infractions committed by these auditors in their capacities as engagement partners (EPs) when conducting audits of DHFL branches.
Beyond these findings, the AQR also highlighted a concerning discrepancy: 33 EPs or branch auditors had signed independent branch auditors' reports for nearly 250 DHFL branches. However, a glaring issue arose—none of these EP appointments had received approval during the company's annual general meeting. These revelations have raised significant concerns about the integrity of the auditing process and compliance with regulatory standards. The Securities and Exchange Board of India (SEBI) made a resolute move on September 20, imposing penalties amounting to Rs 6 crore on 15 entities, including Kapil Wadhawan and Dheeraj Wadhawan, the former promoters of DHFL.
These penalties, meant to serve as a stern message to all, were levied for breaches in disclosure norms related to DHFL. SEBI's directive stipulates that the fines must be collectively and individually settled within a 45-day period, underscoring the urgency of compliance with regulatory standards. The NFRA's decisive actions underscore the importance of accountability and transparency in the auditing profession, sending a strong message to auditors and the financial industry as a whole.
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