Misrepresenting facts in NFRA proceedings amounts to misconduct

NFRA penalises Chartered Accountant for misrepresenting facts holding that misrepresenting facts in NFRA proceedings amounts to professional misconduct.

In a recent judgment, National Financial Reporting Authority (NFRA) has penalised a CA holding that misrepresentation of facts during NFRA proceedings under section 132(4) of the Companies Act 2013 amounted to professional misconduct.

ABCAUS Case Law Citation:
4246 (2024) (08) abcaus.in NFRA

In the instant case, the Chartered Accountant was a proprietor of a CA Firm based at Chikmagalur in Karnataka. A order under section 132(4) of the companies Act 2013 (Act) for investigation by NFRA was passed against the Chartered Accountant in question.

The said CA was the Engagement Partner (EP) for Statutory Audit of a company for two consecutive Financial Years. Tn course of those proceedings before NFRA, the said CA submitted information including details of audit and non-audit revenue earned by her proprietary audit firm and its related parties from the auditee company and/or its related parties.

However, it was found that her proprietary firm was the statutory auditor of more related parties of the auditee company and that she did not disclose details of revenue earned from these four companies in her letter to NPRA.

A clarification was sought from the CA regarding this non-disclosure. The CA stated that the said four companies did not fall within the definition of related parties as per the provisions of section 2(76) of the Act. However, the NFRA observed that the said four companies were e covered within the definition of related parties given u/s 2(76) of the Act as per controlling interest criteria.

The CA submitted that NFRA had already taken action against her under section 132(4)(c) of the Act for deficiencies in audit process for the audit of auditee company. Therefore, a new charge of professional misconduct for the same audit amounted to “double jeopardy”, hence the same was legally not tenable. It was also submitted that the alleged omission was not ·within the ambit of “conduct of professional duties”.

NFRA opined that the issue in the present show-cause notice pertained to submission of wrong/incomplete information about revenue earned from related parties in the course of proceedings before NFRA. As such, this matter was distinct from the orders issued earlier for deficiencies in audit performance. Also, it was held that responsibility for providing complete information by a Professional to NFRA is part of professional duties and the information was called for to evaluate her professional work.

The NFRA held that it was proved that CA committed professional misconduct as per para 7 of part I of second schedule of the CA Act 1949 for failure to exercise due diligence in the conduct of her professional duties by not providing complete information about revenue earned by her from related parties of auditee company.

The NFRA opined that the misrepresentation of facts during proceedings cannot be overlooked. The CA had misrepresented the facts relating to revenue earned by her from auditee company and its related parties and this information was crucial in evaluation of her independence in this matter. The NFRA stated that misleading the regulator leads to interference with the statutory functions of the regulator.

In view of the facts, NFRA invoking the powers under section 132(4)(c) of the Act, ordered imposition of monetary penalty of Rs. One lakh only upon the said Chartered Accountant..

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