An audit company and two auditors have been fined a total of Rs 4.5 crore by the National Financial Reporting Authority (NFRA) for professional misconduct related to purported auditing errors of Reliance Capital's financial statements in 2018–19.
Pathak H D & Associates has been fined Rs 3 crore, Parimal Kumar Jha has been fined Rs 1 crore, and Vishal D Shah has been fined Rs 50 lakh. In addition, an injunction prohibits Jha and Shah from accepting audit work for ten years and five years, respectively.
Regarding the statutory audit of Reliance Capital for the 2018–19 fiscal year, Jha served as the Engagement Partner (EP) and Shah as the Engagement Quality Control Review (EQCR) Partner.
Pathak HD & Associates and Price Waterhouse & Co LLP (PW) conducted a joint audit of the company for the 2018–19 fiscal year. PW reported possible fraud involving investments and loans to certain group firms totaling about Rs 12,571 crore.
The NFRA stated in the ruling dated April 12 that the auditors failed to follow the Standards of Auditing (SA) adequately, even after reporting potential fraud and the other joint auditor (PW) resigned.
"The auditors concurred with the major misstatements in the financial statements resulting from illogical business activities, unjustifiable loan value, and inadequate provision, all in violation of their obligations under the Companies Act and SAs. By justifying the company's conduct and neglecting the principles of accounting and auditing, the auditors also showed a lack of professionalism, the decision stated.
Reliance Capital has bank loans of around Rs 12,000 crore and other external borrowings totaling about Rs 32,000 crore, according to the consolidated financial statements for 2018–19. It extended loans and investments to other group firms by using the borrowing and lending.
The Anil Ambani group owned Reliance Capital at this time.
Through the process of insolvency resolution, the Hinduja group has acquired control of the firm. The ruling said that EP and EQCR partners are prohibited from being appointed as auditors or internal auditors, from conducting any audit in relation to financial statements, or from conducting internal audits of the operations and functions of any corporation or body corporate for a period of ten years and five years, respectively.
