NFRA concludes Reliance Capital joint auditor implicated in Rs 12,571 crore financial irregularities in 2018-19

New Delhi, April 15 (IANS) The National Financial Reporting Authority (NFRA) has found the joint auditors of Reliance Capital guilty of professional misconduct for overlooking a suspected fraudulent report by Price Waterhouse (PW). The report highlighted loans and investments worth Rs 12,571 crore to certain group companies in the FY 2018-2019 by the Anil Ambani Group company.

NFRA identified multiple lapses by M/s Pathak H.D. & Associates (PHD) and its auditors Parimal Kumar Jha and Vishal D Shah. Jha and Shah have been debarred for 10 years and 5 years respectively from any audit work. PHD faces a penalty of Rs 3 crore, Jha Rs 1 crore, and Shah Rs 50 lakh.

According to the NFRA report, PHD failed to question the management despite documented irregularities in Reliance Capital. The recoverability of loans worth Rs 6557 crore in the financial statements was deemed doubtful, and management’s assertions were materially misstated, which PHD overlooked.

Section 143(12) of the Companies Act, 2013 requires auditors to report any identified fraud in the company. NFRA’s report also highlighted loans and investments totaling approximately Rs 12,571 crore to certain group companies by Reliance Capital, as reported by Price Waterhouse.

Despite the suspected fraud report and the resignation of the other joint auditor, PW, the auditors failed to conduct adequate procedures as per auditing standards. The auditors overlooked material misstatements in financial statements due to insufficient provisions, unjustified loan valuations, and irrational business practices.

NFRA concluded that the auditors were grossly negligent and failed to obtain sufficient audit evidence, maintain professional skepticism, challenge management assertions, and identify material misstatements in Reliance Capital’s financial statements. The authority emphasized the lack of professionalism and diligence displayed by the auditors.

In summarizing the NFRA findings, the Auditor’s misconduct concerning Reliance Capital’s financial irregularities has resulted in penalties, debarring of auditors, and highlighted lapses in auditing standards, ultimately affecting the credibility and accountability of financial reporting in the corporate sector.


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