NFRA: PENALISES AUDITOR FOR FAILURE TO REPORT MATERIAL MISSTATEMENT OF CO.'S PROFITS, NON-COMPLIANCE WITH SAS NFRA imposes a penalty of Rs. 5 lakh on an Audit Firm [statutory auditor of Vikas WSP Ltd. (VWL) for FY 2019-20] for not ensuring compliance with Standards on Auditing (SAs) to ensure the audit quality and lend credibility to Financial Statements; Observes that, "The Financial Statements of VWL were materially misstated due to partial recognition of interest cost on Borrowings classified as NPAs by the Banks in the FY 2019-20, resulting in overstatement of profits."; W.r.t. Firm’s submission that for all the non-compliances related to the statutory audit of VWL, the Engagement Partner (EP) was held responsible and was also penalized u/s 132(4)(c) of the Companies Act, 2013, NFRA states that “The contentions of the firm that only the EP is accountable for non-compliance with auditing standards is misconstrued. It is the firm that was appointed as the auditor under section 139 of the Act and it is the auditor (in this case the firm) that has to be held accountable for auditor's duties and responsibilities under section 143 of the Act, including compliance with the SAs.”; NFRA underscores that failure to properly monitor compliance with quality control policies, and procedures by audit firms has been viewed seriously by International Regulators as well, and cites that the PCAOB, the US Regulator, censured and imposed monetary penalty of $600,000 on the firm in the Matter of PricewaterhouseCoopers, for their failure inter alia to comply with the requirements of Quality Control Policies and Procedures of the Firm; Further, NFRA emphasizes that it is the duty of the audit firm to formulate and implement quality control policies, and procedures and ensure that the firm and its personnel comply with professional standards and regulatory and legal requirements and the Independent Auditor’s Report issued by the firm or engagement partners are appropriate, as it is expected to provide useful information to the stakeholders and public, based on which they make decisions on their investments or do transactions with the public interest entity; Lastly, holding that, without a credible audit, investors, creditors and other users of Financial Statements would be handicapped, and the corporate governance system would be seriously challenged and result in a breakdown in trust and confidence of investors and the public at large, NFRA concludes that, “Considering the proved professional misconduct and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, and also keeping in mind that the audit firm has not accepted the charges as pointed out in the SCN…we…hereby order imposition of a monetary penalty…”:NDEL NFRA The order was passed by Dr. Ajay Bhushan Prasad Pandey (Chairperson), Shri. Praveen Kumar Tiwari (Full-Time Member) and Ms. Smita Jhingran (Full-Time Member).
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As auditors, understanding and applying the Companies (Auditor's Report) Order, 2020 (CARO 2020) is crucial to ensure transparency and accountability in financial reporting. Let's dive into how an auditor should report under CARO 2020, using a practical example. 🔍 Example: A Manufacturing Company Imagine you're auditing a mid-sized manufacturing company. Here's how you'd approach the key areas under CARO 2020: 1. Fixed Assets (Clause 3(i)) First, check whether the company maintains proper records for its machinery and equipment. Have these assets been physically verified by the management? Are the title deeds for the factory land held in the company's name? If the title deed for the land is in the name of a director, you must report this discrepancy. 2. Inventory (Clause 3(ii)) Next, ensure that the company conducts regular physical counts of its inventory. Suppose the company’s books show 500 units of raw materials, but only 450 are found during a count. You must report this 10% discrepancy and how the company adjusted it in their financial records. 3. Loans Granted by the Company (Clause 3(iii)) Has the company lent money to its subsidiary? Verify if the terms are fair and in the company's best interest. If the subsidiary is behind on repayments by more than 90 days, this overdue amount must be disclosed in your report. 4. Compliance with Statutory Dues (Clause 3(vii)) Check if the company has been regular in depositing GST, income tax, and other statutory dues. If there’s an outstanding GST liability that’s been unpaid for eight months, this non-compliance should be clearly reported. 5. Fraud Reporting (Clause 3(xi)) Identify any fraud that may have occurred during the year. For instance, if an employee was found embezzling funds, you must report the nature and amount of the fraud, along with the details of how it was discovered. 6. Related Party Transactions (Clause 3(xiii)) Ensure that any transactions with related parties, like sales to a director's firm, are approved by the board and properly disclosed in the financial statements. 7. Internal Audit System (Clause 3(xiv)) For a company of this size, confirm whether there’s an internal audit system in place. If not, report this as a significant deficiency in internal controls. 8. Cash Losses (Clause 3(xvii)) Finally, if the company incurred cash losses of ₹50 lakhs this year and ₹30 lakhs last year, report these figures to highlight financial challenges. 📊 Conclusion: CARO 2020 is a powerful tool for enhancing the transparency of audit reports. By diligently applying these reporting requirements, auditors can provide stakeholders with a clearer picture of the company's financial health. Let’s continue to uphold the standards of our profession and ensure that our audit reports are as insightful and comprehensive as possible! 💼📈 #Audit #CARO2020 #FinancialReporting #Auditors #Compliance #CorporateGovernance
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Well this is going to be a big pain in the asset. #audit #GAAP #ICFR #compliance https://lnkd.in/ecQVt4tD
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Hello everyone, In our previous post, we discussed the legal framework regarding statutory audits. Today, let's focus on the objective and scope of statutory audits to provide a clearer understanding of their importance. Objective of Statutory Audits The primary objective of a statutory audit is to express an opinion on whether the financial statements of an entity are free from material misstatement and present a true and fair view of its financial position. This involves: 1. Verifying Accuracy: Ensuring that the financial statements reflect the true financial status. 2. Ensuring Compliance: Checking adherence to applicable accounting standards and legal requirements. 3. Detecting Fraud: Identifying potential fraud and errors. Scope of Statutory Audits The scope of statutory audits includes: 1. Financial Statements: Auditing the balance sheet, income statement, cash flow statement, and notes to the accounts. 2. Compliance: Verifying that the organization complies with relevant laws and regulations. 3. Internal Controls: Assessing the effectiveness of the entity’s financial controls and risk management practices. The link to complete blog is as below: https://lnkd.in/dxXh3z6x Stay tuned as we continue to break down each aspect of the audit process in upcoming posts. Your insights and questions are always welcome! Happy auditing #Audit #Stataudit #Blog #Discussion #Scope #Objective
Objectives and Scope of Statutory Audits in India - Taxontips
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The Public Company Accounting Oversight Board (PCAOB) has made significant efforts to improve fraud detection in financial audits. They have established standards and guidelines, such as AS 2401, which outlines the auditor’s responsibility to detect fraud in financial statements. However, the effectiveness of these efforts has been mixed. On the positive side, there have been improvements in auditors’ fraud risk assessment performance over time. The PCAOB’s inspections and reports have highlighted areas where auditors need to improve, such as performing adequate follow-up procedures and addressing identified fraud risks. Despite these improvements, there are still challenges. PCAOB inspection reports have found instances where auditors failed to adequately address fraud risks, such as not performing sufficient substantive procedures or failing to assess revenue recognition as a potential fraud risk. These findings suggest that while progress has been made, there is still room for improvement in detecting and addressing fraud effectively. Overall, the PCAOB has made strides in enhancing fraud detection, but continuous efforts are needed to ensure auditors consistently apply the necessary procedures and professional skepticism. https://lnkd.in/gSTqHnJa
The Auditing Industry’s Regulator Has a Vocal Critic. And She’s on Its Board.
wsj.com
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What is DVC? - A Document Verification Code (DVC), a numerical unique number/ code auto-generated by the document verification system (DVS) (software adopted by the Institute of Chartered Accountants of Bangladesh (ICAB)) upon inserting few legal information and audited figures of a company, is used in the auditors' report and audited financial statements at the time of signing thereof. Some of the selective figures in the financial statements are verifiable with the records in DVS by the relevant stakeholders like regulators (FRC, RJSC, ICAB etc.), NBR, Banks/FIs to justify the unique audited copy to all stakeholders/users. By using this code after audit of a company for a particular period, none can generate or produce another set of audited financial statements for availing undue benefits therefrom. So, the DVC is an entrance code of the company for that particular period in order to verify the data between the audited information and DVS and to confirm the uniqueness and originality. The main objective of such a DVC is to ensure a single and unique audited financial statement of a company for ensuring uniformity, originality and transparency at all levels. The specific objectives are: a) Stopping generation of multiple separate auditors' reports with audited financial statements for the same period in the way it is required for undue benefits. The DVC helps avert the existing evil-practice of showing loss or less profit for tax purposes and showing profits significantly for banks/FIs for availing credit facilities using different sets of financial statements violating the legal provision in the Companies Act 1994. b) Providing a uniform, unique & original set of audited financial statements for all stakeholders giving the real picture under the legal provision. c) Closing the door on non-compliant auditors, tax evaders and fraud credit appliers so that a sound and transparent practice may take place in the corporate sector, d) An effort of transparent and fair audit process instead of undue signature in the name of audit practised by non-compliant auditors as required by owners and tax lawyers for the undue benefits as stated above, e) Contributing to increase of tax collection through effective and efficient quality audit instead of unjustified and unaudited signature of non-compliant auditor. The use of the document verification system (DVS) has increased in Bangladesh in the last couple of years, plugging the scope for unruly firms to submit forged audit reports. https://lnkd.in/dFRxVbP9
Firms becoming more transparent in financial statements
thedailystar.net
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National Financial Reporting Authority (NFRA) of India issued a circular, dated October 3, 2024, under the Companies Act, 2013, particularly focusing on the responsibilities of auditors in group audits of consolidated financial statements (CFS). Key Points: 1. Obligations of Auditors: Auditors must comply with the Standards on Auditing (SAs) and the Code of Ethics, particularly SA 600 (using the work of another auditor in group audits). 2. Challenges in Group Audits: Audits of complex group structures (subsidiaries, special purpose vehicles, etc.) face significant risks such as related party transactions, fund diversion, and complex business structures. 3. NFRA Observations: NFRA has noticed serious audit failures, particularly in cases like Reliance Capital, Coffee Day Enterprises, and IL&FS, where auditors failed to identify fraud, fund diversion, and other critical issues. 4. Audit Failures: Principal Auditors often failed to adequately review the work of component auditors, which led to missed fraud risks and financial discrepancies. 5. SA 600 Clarifications: The circular stresses that Principal Auditors cannot rely solely on the work of Component Auditors. They must perform adequate procedures and document their work. 6. Legal and Professional Requirements: Auditors must follow not just SA 600 but also related standards (like SA 200, SA 315) and responsibilities under the Companies Act, 2013. 7. Mandatory Compliance: The term "should" in SA 600 is interpreted as mandatory, requiring auditors to follow the procedures unless they have valid reasons for using alternative means. 8. Public Interest: The circular emphasizes protecting the public interest and restoring confidence in audits of Public Interest Entities (PIEs). It urges auditors to rigorously follow standards to avoid audit failures and potential financial losses. This circular reiterates the importance of audit quality, independence, and compliance with auditing standards to prevent fraud and protect investors and stakeholders.
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Addressing Compliance Issues: A Case Study of Regent Professional Academy Private Limited Introduction In recent times, regulatory compliance has become a critical aspect for companies to ensure smooth operations and avoid penalties. This article delves into the case of Regent Professional Academy Private Limited, which faced legal scrutiny for non-compliance with financial reporting requirements. The objective is to highlight the importance of meticulous adherence to statutory obligations and the repercussions of oversight. Background On March 21, 2023, the Office of the Regional Director issued an order directing necessary actions for filing the balance sheet for FY 2020-21 without the signatures of the auditor and directors, as stated in the order. This initiated a series of compliance checks and enforcement actions by the Registrar of Companies (RoC). Issuance of Show Cause Notice Subsequently, on April 10, 2023, a show cause notice was issued under Sections 134(1) & (6) to Regent Professional Academy Private Limited and its defaulting officers, compelling them to explain the absence of signatures on their financial statements. Company's Response In response, the company’s director, Govind Prasad Garg, provided a detailed explanation on behalf of the company. Key points from his communication included: 1. Regent Professional Academy is a private limited company with two directors: Govind Prasad Garg and Savitri Garg. 2. No unsecured loans were taken from any external parties. 3. The financial statements were indeed signed by the board and the auditor. However, due to the disruptions caused by COVID-19 and other personal issues, an unsigned copy was mistakenly filed. 4. Signed copies of the financial statements, directors' report, and auditors' report were subsequently submitted for reference. 5. During the hearing, Mr. Govind Prasad Garg reiterated the company’s position and pleaded for an opportunity to rectify the mistake by uploading the signed financial documents. Outcome and Penalty Imposition After careful consideration of the circumstances, the RoC concluded that the company and its officers were liable for penalties under Section 134(8) of the Companies Act, 2013. Consequently, a penalty of ₹4,00,000 was imposed: ₹3,00,000 on the company and ₹50,000 each on the directors, Govind Prasad Garg and Savitri Garg. Conclusion This case underscores the critical importance of compliance with regulatory requirements. Companies must ensure accuracy and completeness in their statutory filings to avoid severe penalties. The COVID-19 pandemic has undoubtedly posed challenges, but it also serves as a reminder to strengthen internal controls and ensure that compliance processes are robust and resilient.
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