NFRA penalises 3 auditors in Reliance Home Finance case

New Delhi: The National Financial Reporting Authority (NFRA) has slapped penalties totalling Rs 1.6 crore on an audit firm and two auditors for professional misconduct and auditing lapses in Reliance Home Finance for FY 2018-19.

A fine of Rs 1 crore has been levied on audit firm Dhiraj & Dheeraj, Rs 50 lakh on Piyush Patni and Rs 10 lakh on Pawan Kumar Gupta. Both Patni and Gupta are partners of the Mumbai-based audit firm Dhiraj & Dheeraj.

Besides, the regulator has also barred Patni and Gupta for a period of 5 years and 3 years, respectively, from being appointed as auditors or from undertaking any audit in respect of financial statements or internal audit of any company or body corporate.

Patni was the Engagement Partner (EP) and Gupta was the Engagement Quality Control Review Partner (EQCR) for the statutory audit of Reliance Home Finance Ltd (RHFL) for 2018-19.

Price Waterhouse & Co Chartered Accountants LLP (PW) was initially appointed as the auditor of RHFL for 2018-19. However, PW resigned from the audit in June 2019, without issuing an audit report for FY19.

Further, PW reported suspected fraud regarding loans amounting to approx Rs 7,900 crore as of March 31, 2019.

Thereafter, Dhiraj & Dheeraj was appointed by the board of directors of RHFL as statutory auditors of the company.

The order came after Sebi informed NFRA that Dhiraj & Dheeraj had issued a qualified opinion for FY 2018-19, without making adequate disclosures in the audit report, including the impact of 'General Purpose Corporate Loans' (GPCL) on financial statements.

In the order dated April 26, NFRA found that the auditor did not exercise professional scepticism and perform risk assessment procedures to identify, assess and respond to the Risk of Material Misstatement (ROMM) due to fraud or error in respect of RHFL's loan disbursal (GPCL) to financially weak companies without appropriate business rationale.

"The auditor (Dhiraj & Dheeraj, Patni and Gupta) did not perform sufficient appropriate audit procedures in respect of verification of the company's assessment of the going concern assumption, and adequacy of the Expected Credit Loss (ECL) of Rs 278 crore on loans at amortised costs of Rs 16,259 crore, which included Rs 7,849 crore of GPCL to credit impaired entities on which ECL was only Rs 173 crore," NFRA said in the order.

Also, the audit firm accepted the audit engagement without complying with the relevant requirements of the Chartered Accountants Act, 1949.

The auditor did not ensure an objective engagement quality review by the EQCR Partner, failed to adhere to quality standards, failed to evaluate the going concern basis of accounting, and failed to comply with the requirements of Standards of Auditing (SA) while reporting on the work of management's experts, the order said.

The omissions and commissions of the auditor had rendered the audit report unreliable. The audit firm had issued a qualified report while it was required to issue a disclaimer or adverse opinion, had the audit been conducted as per SAs, it added.