NFRA imposes penalty on Auditor for Lapses in Sobha Audit Case

LI Network

Published on: October 19, 2023 at 17:26 IST

The National Financial Reporting Authority (NFRA) has imposed a penalty of Rs 5 lakh on an auditor for professional misconduct and other deficiencies identified during the audit of Sobha Ltd for the fiscal years 2017-18 and 2018-19.

The decision, dated September 29, was taken by the regulator against Supreet Sachdev, a partner at BSR & Co LLP, following information received from the Securities and Exchange Board of India (SEBI) in May 2021.

The SEBI had communicated concerns regarding Sachdev’s professional conduct and other irregularities in the statutory audit of Sobha for the specified financial years.

NFRA’s investigation found that the auditor had not adhered to the auditing standards (SA) because he failed to report on the uncertainty regarding the recovery of unsecured land advances totaling Rs 1,843.13 crore. Furthermore, the land in question did not have a marketable title, and some of it was involved in legal disputes.

The auditor, Sachdev, did not report these issues, even after identifying weaknesses in internal controls over the advances.

There was no aging schedule, no monitoring, and no confirmations obtained by the firm. Additionally, Sachdev did not report the lack of provisioning against the amounts owed by certain individuals and security deposits given to others, despite being aware that these transactions were under investigation by SEBI.

Notably, Sachdev did not address the concerns raised by SEBI in its Independent Auditor’s Report for the fiscal year 2019, either through qualification or the Emphasis of Matter.

This penalty underscores the importance of adhering to auditing standards and promptly reporting any irregularities or uncertainties in financial audits.

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