NFRA debars CA Santosh Deshmukh for one year citing serious audit irregularities at Sanwaria Consumer Ltd
Sep 12, 2024
In a major crackdown on audit malpractice, Chartered Accountant Santosh Deshmukh has been debarred for a year and fined Rs 5 lakh by the NFRA for severe audit failures at Sanwaria Consumer Limited.
Chartered Accountant Santosh Deshmukh has been debarred for a period of one year by India’s supreme audit watchdog, the National Financial Reporting Authority (NFRA). In addition to the debarment, a penalty of Rs 5 lakh has been imposed on him.
The debarment and penalty follow findings of serious audit irregularities during the statutory audit of Sanwaria Consumer Limited (SCL) for the financial year 2017-18. The NFRA's investigation uncovered significant lapses in the audit conducted by Deshmukh, who was the Engagement Partner for M/s Khandelwal Kakani and Co., the statutory auditors for SCL.
Major Failures:
Inventory Valuation Errors: Deshmukh failed to verify the existence and valuation of SCL's inventories, leading to an overvaluation of soya seed inventories by approximately Rs 18.93 crore and paddy inventories by Rs 13.30 crore.
Investment Impairment Issues: He did not verify the ownership, valuation, or impairment testing of SCL's investments in its loss-making subsidiaries and associates.
Consolidation Failures: Deshmukh failed to report non-compliance related to the consolidation of financial statements.
Trade Receivables: There was a lack of sufficient audit evidence for unsecured trade receivables, which constituted 100% of the company’s receivables.
Risk Assessment Deficiencies: Inadequate risk assessment procedures led to potential misstatements in revenue recognition.
Audit Documentation: Deshmukh's audit documentation was grossly insufficient, failing to meet the standards set by SA 230.
Internal Control Communication: He neglected to communicate deficiencies in internal controls to Those Charged with Governance (TCWG).
Background of the Case
The NFRA initiated proceedings under Section 132 of the Companies Act, 2013, following information from the Securities and Exchange Board of India (SEBI) about financial irregularities in SCL. A Show Cause Notice (SCN) was issued to Deshmukh on April 8, 2024, prompting his response on May 24, 2024, which refuted the charges and requested a personal hearing.
The NFRA’s investigation revealed that the audit conducted was marred by gross negligence and significant breaches of auditing standards and ethical requirements. Consequently, the NFRA has ordered a one-year debarment from performing audit or internal audit functions and imposed a monetary penalty of Rs. 5 lakh. This decision reflects the severity of the audit failures and aims to uphold the integrity of financial reporting standards.
This order will come into effect 30 days from its issuance.
[ET CFO]
