NFRA levies Rs 15 lakh fine on two auditors for lapses in Lexus Granito India audit, ET LegalWorld | Court Practice News

The National Financial Reporting Authority (NFRA) has levied fines totalling Rs 15 lakh on two auditors, including a audit firm for lapses in connection with the audit of Lexus Granito India Ltd for 2017-18 to 2019-20. Besides, the regulator also debarred Rahul Jangir the engagement partner (EP) of Ashok Holani & Co for a period of three years from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.

Individually, NFRA levied a fine of Rs 10 lakh on the audit firm Ashok Holani & Co and Rs 5 lakh on Jangir.

The order came after the regulator received information from Sebi in August 2021, about its investigation in the accounting irregularities of the company.

Thereafter, NFRA initiated an investigation and found the auditors prima facie guilty of professional misconduct and issued a show cause notice to them in December 2022.

In its order on Wednesday, the regulator found that Lexus Granito India Ltd (LGIL) had unilaterally written back substantial amounts of its liabilities and treated them as other income, which resulted in overstatement of profits by Rs 2.31 crore in 2017-18, and an understatement of losses by Rs 5.89 crore in 2018-19 and Rs 3.15 crore in 2019-20.

Despite the presence of material and pervasive misstatements, the auditors did not consider a modified opinion as per standards of auditing (SA) for the 2017-18 to 2019-20, and rather they reported these matters through Key Audit Matter (KAM) in 2018-19 and 2019-20, which was not in compliance with SA, NFRA said in the order.

Further, the auditors failed to obtain sufficient appropriate evidence for the audit of related party transactions of the company and approximately 44 per cent of the Initial Public Offering (IPO) proceeds were paid to one of its related parties.

However, no sufficient appropriate documentation of audit procedures for verification of utilisation of IPO proceeds was found in the audit file, except for a list of payments out of the IPO proceeds.

Therefore, the auditors failed to meet the relevant requirements of the Standards on Auditing in several significant respects reflecting a serious lack of professional competence to perform an audit of a Public Interest Entity like the LGIL, NFRA said in the order.

Also, the auditors were grossly negligent and failed to apply professional scepticism and due diligence sufficiently and adequately to challenge the management, it added.

  • Published On Oct 6, 2023 at 11:24 PM IST

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