NFRA imposes fines and bans four auditors over DHFL audit misconduct

The National Financial Reporting Authority (NFRA) has imposed a one-year ban and a fine on four auditors for
alleged professional misconduct during the 2017-18 audit of Dewan Housing Finance Corp Ltd (DHFL) branches.
DHFL, now known as Piramal Capital and Housing Finance Ltd, is a listed entity owned and controlled by the
Piramal Group.
In four separate orders, NFRA fined Mathew Samuel, Sam Varghese, Harish Kumar T K, and M Baskaran, partners of
audit firm K Varghese & Co, Rs 1 lakh each. The auditors are prohibited from undertaking any audit for financial
statements or internal audit of companies or body corporates during the ban period.
NFRA's investigation found violations of the Companies Act, 2013, and the Chartered Accountants Act, 1949, as well
as non-compliance with applicable Standards on Auditing (SAs). The investigation was initiated following allegations
of misappropriation of approximately Rs 31,000 crore of public funds. The Enforcement Directorate reported an
operation in April 2020 against alleged bank fraud of about Rs 3,700 crore by the promoters/directors of DHFL.
In response to these allegations, NFRA initiated an Audit Quality Review (AQR) conducted by Chaturvedi & Shah
(CAS) firm to probe into the role of the Statutory Auditors of DHFL for the FY 2017-18. During the review, NFRA
discovered that 33 Engagement Partners (EPs) or branch auditors had signed the "Independent Branch Auditors'
Report" for nearly 250 branches of DHFL.
Subsequently, NFRA investigated K Varghese & Co, the "Statutory Branch Auditor" of 17 branches of DHFL for FY
2017-18, with Mathew Samuel, Sam Varghese, Harish Kumar T K, and M Baskaran as its partners in the firm for the
audit of several branches of the housing finance company.
According to NFRA, none of the 33 branch auditors' appointments were approved at the Annual General Meeting
(AGM) of DHFL, as required by the Companies Act. Moreover, the auditors portrayed themselves as the "branch
statutory auditor" in all communications with DHFL and CAS and issued an "Independent Branch Auditors' Report".
By doing so, the auditors not only accepted a legally invalid appointment but also violated the provisions of the
Chartered Accountants Act, which requires ensuring a valid appointment as per the norms.
The regulator further investigated the auditors' compliance with the applicable Standards on Auditing (SAs) in the
performance of the branch audit of DHFL. It was revealed that the auditors had not complied with laws under
Standards on Auditing, had not maintained proper audit documentation, and displayed flawed understanding and
interpretations of various stipulations in the law and standards in an unprofessional manner that established their
professional misconduct in the matter, according to NFRA.
In conclusion, the NFRA's actions against the auditors emphasize the importance of maintaining high professional
standards in the auditing sector. The penalties and ban demonstrate the regulator's commitment to ensuring auditors
adhere to proper procedures and maintain the integrity of financial reporting. This case serves as a reminder for
auditors and firms alike to strictly follow established guidelines and ethical practices to avoid similar repercussions in
the future.

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NFRA imposes fines and bans four auditors over DHFL audit misconduct

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