DHFL Audit: 2 Auditors Banned, Rs 10 Lakh Fine

New Delhi, Dec 7 (PTI) The National Financial Reporting Authority (NFRA) has banned two auditors for up to 10 years and slapped a total fine of Rs 10 lakh on them for professional misconduct in connection with the audit of Dewan Housing Finance Corp Ltd (DHFL) in 2017-18.

DHFL (now known as Piramal Capital and Housing Finance Ltd) is a listed entity, owned and controlled by Piramal Group.

In two separate orders passed on Wednesday, NFRA imposed a fine of Rs 5 lakh each on Jignesh Mehta and Amit Vinay Chaturvedi. Further, Mehta was the engagement partner, while Chaturvedi was the Engagement Quality Control Review (EQCR) for the audit of DHFL for FY 2017-18. Both were partners of Chaturvedi & Shah LLP (C&S).

Besides, Mehta was prohibited for a period of 10 years, while Chaturvedi was restrained for 5 years from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.

In January 2019, some media reports brought to light the alleged siphoning by the directors of DHFL of around Rs 31,000 crore of public money. Pursuant to this NFRA, took up the audit quality review (AQR) of the statutory audit of DHFL for the FY 2017-18 carried out by C&S.

In the matter of Jignesh Mehta, NFRA found the auditor failed to discharge his statutory duty of completing the branch audits, which was the key requirement of the Act in the completion of the audit of the DHFL's financial statements for the year 2017–18.

In the absence of the audit of the branches, the independent auditor's opinion on the financial statements of 2017–18 is incomplete, invalid, and, therefore, void ab initio.

Mehta also failed to obtain sufficient appropriate audit evidence regarding the entity's ability to continue as a going concern and ignored clear indications and events that should have raised concerns over the entity's ability to continue as a going concern.

The auditor (Mehta) also failed to discharge his professional duties by not challenging management's assessment of the going concern assumption by failing to test the adequacy of the supporting evidence and failing to evaluate the risk of management bias, thereby, he did not comply with the norms.

In the case of Chaturvedi, NFRA found the EQCR partner failed to objectively evaluate and question Jignesh Mehta when he failed to meet the relevant requirements of standards of auditing, thereby violating the norms.

The major lapses on the part of Chaturvedi include false reporting in the independent auditor's report about the audit of branches and failure to report material misstatements in the consolidated financial statements (CFS).

Further, Chaturvedi failed to examine non-compliance with NHB directions, failed to verify internal financial controls, failed to assess the risk of material misstatements, failed to evaluate the going concern assumption, and failed to verify the related party transactions, the audit regulator said.

In October, NFRA slapped penalties on 18 auditors and also debarred them for varying periods for lapses with respect to audits of various branches of housing finance company DHFL in 2017-18.

In April this year, the audit regulator imposed a fine and a one-year ban on four auditors for alleged professional misconduct in the same matter.