The National Financial Reporting Authority (NFRA) has imposed a total ban and a fine of Rs 400,000 on four partners of an audit firm, Varghese & Co, after probing into the branch audit of erstwhile Dewan Housing Finance Corporation (DHFL). The firm’s four partners were guilty of “professional misconduct”, and other lapses were also highlighted for FY18.

“NFRA’s investigation revealed prima facie evidence that branch auditors accepted appointments lacking valid approval and also performed branch SAs in contravention of the Companies Act 2013 and Chartered Accountants Act 1949 audits,” it said.

The lapses were discovered after NFRA automatically noted the financial fraud reported by DHFL and conducted an audit quality review (AQR) of Mumbai-based chartered accountants Chaturvedi & Shah (CAS) ‘s statutory audit of housing finance companies for FY18.

NFRA noted that 33 engagement partners (EPs) or branch auditors signed the Independent Branch Auditor Reports for nearly 250 branches during the review process. Its investigation revealed that DHFL’s annual general meeting did not approve the appointment of 33 branch auditors, as required by the Companies Act.

In addition, the auditors have described themselves as “Branch Statutory Auditors” in all communications with the Company and CAS and issued an “Independent Branch Auditors Report”. In its order, NFRA said they were doing so in breach of the Chartered Accountants Act 1949 (CAs Act) provisions, which require securing valid appointments.

In addition, as CAS relies on a “Branch Statutory Audit” performed by partners, NFRA also investigates partners’ compliance with the Applicable Audit Standard (SA). It was found that they did not adhere to the principles of SA, did not keep proper audit documentation, and misunderstood and interpreted various provisions in the law and standards in an unprofessional manner.

NFRA is the statutory body that oversees the implementation and enforcement of auditing and accounting standards and the quality of related professional services.

Following allegations of misappropriation of approximately Rs 31,000 crore of public funds, the Enforcement Directorate reported an operation in April 2020 against alleged bank fraud of about Rs 3,700 crore by the promoters/directors of DHFL. The company eventually entered corporate bankruptcy and was acquired by Piramal Capital and Housing Finance.