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The National Financial Reporting Authority (NFRA) has taken stringent action against an auditor for professional misconduct and shortcomings in the audit of Sobha Ltd for the financial years 2017-18 and 2018-19. In a significant move, the regulatory body imposed a hefty penalty of Rs 5 lakh on Supreet Sachdev, a partner at BSR & Co LLP, highlighting the authorities' commitment to maintaining the integrity and accuracy of financial audits in India.
The regulatory order, issued on September 29, is a clear statement that lapses in financial auditing will not be taken lightly. The NFRA initiated this action after receiving a letter from the Securities and Exchange Board of India (SEBI) in May 2021. The letter raised concerns regarding Supreet Sachdev's professional misconduct in the statutory audit of Sobha for the financial years 2017-18 and 2018-19. The NFRA acted promptly upon these concerns, launching an investigation that culminated in this significant penalty.
The core issue that led to this action was Sachdev's failure to adhere to the established auditing standards (SA) in the course of the Sobha audit. Specifically, he failed to report on the uncertainty surrounding the recovery of unsecured land advances, which amounted to a staggering Rs 1,843.13 crore. This uncertainty arose from the absence of marketable titles to the land, further complicated by the fact that some of these properties were mired in litigation.
What's particularly troubling is that the auditor did not report this issue even after identifying weaknesses in the internal controls regarding these advances. The NFRA order asserts that no aging schedule was maintained, no monitoring took place, and no confirmations were obtained regarding these advances. Such a blatant disregard for auditing standards not only raises questions about the quality of the audit but also calls into question the audit firm's overall commitment to ensuring financial transparency and accuracy.
However, that's not all. Even more damaging was Sachdev's silence on the concerns expressed by SEBI in the Independent Auditor's Report for the 2018–19 fiscal year. No qualifications or "Emphasis of Matter" were included in the report to address these shortcomings. This lack of accountability and openness is a grave violation of auditing standards and an insult to the fundamental ideas that support financial reporting.
Auditors play a pivotal role in maintaining trust in the financial markets. Their reports provide assurance to investors, shareholders, and other stakeholders that a company's financial statements are accurate and reliable. When an auditor fails to meet their responsibilities and standards, it can erode this trust, leading to potentially damaging consequences for financial markets, companies, and the broader economy.
This action by the NFRA is a critical reminder that such lapses will not be tolerated in India's financial and business landscape. Auditors must fulfil their duties with the utmost integrity, diligence, and transparency to uphold the credibility of the financial reporting system.
While penalties and regulatory actions serve as vital tools for accountability, the core focus should be on ensuring that the auditing profession maintains the highest standards of professionalism and ethics. It is incumbent on audit firms to invest in continuous training, stay updated on evolving auditing standards, and foster a culture of compliance and transparency.
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