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regular-article-logo Monday, 11 November 2024

Watchdog worried over shoddy audits

The regulator emphasised that principal auditors cannot shirk their responsibility by claiming they did not perform adequate procedures

R. Suryamurthy New Delhi Published 14.10.24, 08:01 AM
Number watch

Number watch Sourced by the Telegraph

The financial watchdog, the National Financial Reporting Authority (NFRA), has lambasted statutory auditors for misinterpreting their obligations in the audit of group financial statements.

The regulator emphasised that principal auditors cannot shirk their responsibility by claiming they did not perform adequate procedures.

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In a scathing circular, NFRA highlighted instances of gross negligence and audit failure in the audits of group financial statements.

These include high-profile cases such as Reliance Capital, Coffee Day Enterprises, Dewan Housing and Finance and IL&FS.

"Instances include Reliance Capital Limited, Reliance Home Finance Limited, Reliance Commercial Finance Limited (together accounting for alleged fraud of 29,000 crore), Coffee Day Enterprises Limited (alleged fraud of 3,500 crore), Dewan Housing and Finance Limited (alleged fraud of 34,000 crore), and audit quality review of IL&FS (which collapsed with a debt of 90,000 crore)," it said.

In these cases, the NFRA noted that monies were diverted through the subsidiaries and associates of companies.

"The principal auditors did not raise red flags at the right time despite indicators of fraud, going concern issues and diversion of funds, as they relied on fallacious interpretations of SA 600 to not go into these issues and instead completely relied upon the clean audit reports of the component auditors," the circular said.

The NFRA accused auditors of relying on fallacious interpretations of Standard of Auditing (SA) 600 to avoid delving into these issues and instead relying solely on clean audit reports from component auditors.

While SA 600 does not explicitly require a review of audit work papers of component auditors by the principal auditor, the NFRA said such a review may be necessary in appropriate cases.

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