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India’s super audit regulator, National Financial Reporting Authority (NFRA) has debarred CA Piyush Patni the engagement partner of a Non-Banking Finance Company (NBFC) Reliance Home Finance Limited (RHFL) for five years from undertaking any audit over professional misconduct and further imposed upon him a monetary penalty of Rs fifty lakhs.
The audit regulator has also debarred CA Pawan Kumar Gupta, who was the Engagement Quality Control Review Partner (the EQCR Partner’) for the statutory audit of RHFL for three years and imposed monetary penalty of Rs ten lakhs, along with this the audit Firm M/s Dhiraj & Dheeraj is fined with monetary penalty of Rupees One crore.
NFRA’s actions were prompted by the auditor’s failure to uphold essential professional standards, especially in the context of a predecessor’s resignation and reported suspicions of fraud.
“Given the high degree of public interest in this listed entity, it was the duty of the Auditor to conduct the audit with the highest level of professional skepticism and due diligence and report their opinion in an unbiased manner. Despite the resignation of the previous auditor and a reporting of suspected fraud, the auditor failed to conduct the audit as per standards on auditing,” the NFRA said in its order.
The financial statements of RHFL for the fiscal year ending March 31, 2019, revealed alarming discrepancies, including material misstatements due to inadequate provisions, questionable loan valuations, and questionable business practices. Despite these red flags, the auditor neglected to adhere to established auditing standards, compromising the reliability of their opinion and displaying a lack of professional integrity.
RHFL’s total assets were Rs 18,100 crore, with total external liabilities of approximately Rs 6,300 crore as of March 31, 2019. These external liabilities included a debt of over Rs 14,800 crore, comprising debentures, bank borrowings, and commercial papers. The company reported a total revenue of around Rs 2,000 crore and a net profit of Rs 67 crore for FY 2018-19. Suspected fraud regarding loans amounting to approximately Rs 7,900 crore was highlighted by Price Waterhouse & Co Chartered Accountants LLP (PW).
The involvement of the previous auditor, Price Waterhouse & Co Chartered Accountants LLP (PW), whose resignation and report of suspected fraud triggered the investigation, is noteworthy. Despite PW’s concerns, the subsequent Auditor, M/s Dhiraj & Dheeraj, failed to exercise due diligence and professional skepticism, leading to the NFRA’s regulatory action.
M/s Price Waterhouse & Co Chartered Accountants LLP (PW) initially served as RHFL’s auditor for FY 2018-19. However, PW resigned from the audit on June 11, 2029, without issuing an audit report for that fiscal year. Subsequently, Mis Dhiraj & Dheeraj were appointed by RHFL’s board of directors on June 29, 2019, to fill the vacancy left by PW’s resignation.
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