The National Financial Reporting Authority (NFRA), in its commitment to maintaining the integrity of financial reporting in India, recently initiated action against Chartered Accountant (CA) Supreet Sachdev, the Engagement Partner (EP) involved in the statutory audit of Sobha Limited for the financial years 2017-18 and 2018-19.
This decisive move by NFRA was prompted by revelations received from the Securities and Exchange Board of India (SEBI) regarding professional misconduct during the audit process. Sobha Limited, a prominent real estate company, operates within the purview of regulatory bodies such as the National Stock Exchange (NSE) and BSE Ltd (BSE). In this exposé, we delve into the specifics of NFRA’s actions, the findings, and the implications.
NFRA Action and Regulatory Context
Under Section 132(4) of the Companies Act 2013, NFRA invoked its powers to investigate the conduct of CA Supreet Sachdev, who served as the Engagement Partner for the statutory audit of Sobha Limited. Notably, Sobha Limited’s equity shares are publicly traded on NSE and BSE, subjecting the company to the stringent regulatory oversight of NFRA. In line with the Ministry of Corporate Affairs’ notification, Sobha was mandated to prepare its Financial Statements for the fiscal years 2017-18 and 2018-19 in accordance with Indian Accounting Standards (Ind AS). For the statutory audit of these crucial financial periods, BSR & Co LLP was entrusted as the Statutory Auditor, with CA Supreet Sachdev as the responsible Engagement Partner.
Findings of NFRA Investigation
The Order issued by NFRA sheds light on the critical lapses in the audit process conducted by CA Supreet Sachdev. The EP was found to be in breach of the provisions of various auditing standards, including SA 540, SA 200, and SA 315. The core finding pertains to the failure to report on the uncertainty surrounding the recovery of unsecured land advances amounting to a staggering ₹1,843.13 crores. This financial exposure was further exacerbated by the absence of marketable titles to the land and legal disputes concerning some of these properties.
Moreover, the EP’s failure to address the weaknesses in the internal controls over the advances, manifested by the lack of aging schedules, monitoring, and confirmations, was a grave oversight. The auditor did not report non-provisioning against certain outstanding amounts and security deposits from individuals, despite being aware of SEBI’s ongoing inquiry into these transactions. In the Independent Auditor’s Report for FY 2018-19, the EP omitted any mention or qualification regarding the issues raised by SEBI, effectively disregarding the importance of addressing these concerns.
Imposition of Monetary Penalty
Following a meticulous investigation and due process, NFRA concluded that CA Supreet Sachdev was guilty of professional misconduct. In response, NFRA issued an Order imposing a substantial monetary penalty of ₹5,00,000 on the EP. This punitive measure aims to hold the EP accountable for the lapses identified during the statutory audit of Sobha Limited.
Conclusion and Implications
The NFRA’s action against CA Supreet Sachdev underscores the critical role played by regulatory bodies in upholding the transparency and reliability of financial reporting in India. The findings of the investigation serve as a cautionary tale for auditors, emphasizing the importance of adhering to auditing standards and promptly addressing concerns raised by regulatory authorities. The issuance of a monetary penalty sends a clear message that professional misconduct in the auditing profession will not be tolerated.
The repercussions of this Order extend beyond the monetary penalty. It serves as a precedent for auditors and underscores the need for meticulous, standards-compliant, and transparent auditing practices in safeguarding the integrity of financial reporting. In a landscape characterized by the constant evolution of financial markets and regulatory expectations, auditors must remain vigilant in fulfilling their role as financial gatekeepers and maintaining the highest ethical standards.
NFRA’s actions reflect a commitment to promoting financial transparency and protecting the interests of stakeholders. The Order, effective 30 days from its issuance, carries implications for auditors, companies, and the broader financial ecosystem in India. It underscores the unwavering commitment to upholding the principles of integrity, accountability, and professionalism in the domain of financial reporting and auditing.
