🔍Upholding Audit Integrity: NFRA's Action on CA and CA Firm 🔍

🔍 Upholding Audit Integrity: NFRA's Actions on CA and CA Firm 🔍

In a significant move to maintain audit integrity, the National Financial Reporting Authority (NFRA) has taken decisive action against CA Pathak H.D. & Associates (PHD), auditors of Reliance Capital Limited (RCL).

💼 Background and Enforcement Action:

  - NFRA has imposed substantial penalties:
  - Rs 3 Crore on PHD
  - Rs 1 Crore on the Engagement Partner (EP) CA Parimal Kumar Jha
  - Rs 50 Lakhs on the Engagement Quality Control Reviewer (EQCR) CA Vishal D Shah
  - EP and EQCR face debarment from practice for 10 and 5 years, respectively.

🔍 Issues Identified:

1. Suppression and Misconduct:
Auditor failed to maintain independence, succumbing to influence from the Audit Committee and Management.
2. Over-reliance on Legal Opinions:
Auditors' reliance on legal opinions can compromise public interest obligations.
3. Misrepresentation of Financials:
RCL's financials contained material misstatements, including portraying irrecoverable loans as recoverable and potential shortfall in expected credit losses.

💡 Reflective Insights:

- The audit profession, particularly in India, faces criticism for not fully embracing its watchdog role.
- Past audit failures highlight flaws in the joint audit system.

🔒 Conclusion:

NFRA's stringent actions underscore a commitment to reinforce audit standards and independence, emphasizing the critical role auditors play as public watchdogs.

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