Why in news?
The National Financial Reporting Authority (NFRA) has taken action against an auditor who led the audit of IFIN in 2017-18.s
What is NFRA?
- The NFRA is a national regulator for auditors.
- It was set up in 2018 under the Companies Act, 2013.
- It was set up specifically to investigate the role of auditors in frauds in listed and large public interest entities.
- Previously, only the Institute of Chartered Accountants of India can bar chartered accountants from being appointed as auditors for a company.
- Also, the Securities and Exchange Board of India (SEBI) was permitted to bar CAs from auditing listed companies.
What is IFIN?
- IL&FS Financial Services (IFIN) is a subsidiary of IL&FS.
- It ran into deep financial trouble after running out of cash in 2018.
What action has been taken in this case?
- The NFRA has fined Udayan Sen, the former CEO of Deloitte Haskins and Sells, Rs 25 lakh for lapses in the audit.
- It also barred the auditor from auditing activities for seven years.
- The NFRA noted that Deloitte was providing such non permitted services to companies related to IFIN, including the IL&FS.
- This is the first order of its kind by NFRA.
What are the roles of auditors?
- The role of an auditor is to report on whether a company’s financial statements have been reported in line with accounting standards.
- An auditor has to raise red flags in case the auditor notes any concerns regarding the statement of accounts or in any financial transactions entered into by the company.
- Auditors are also required to ensure that there is no conflict of interest in their own appointment.
On what grounds can auditors be barred?
- Auditors can be barred for professional misconduct including not exercising due diligence, or for gross negligence in their duties.
- The Companies Act prohibits audit firms from providing certain non-audit services to clients that they are auditing.
What kind of action has been taken against auditors earlier?
- In 2018, SEBI barred an audit firm from auditing listed companies for two years.
- It barred two auditors from auditing listed companies for three years.
- They were barred for professional misconduct in the Satyam Computers scam, which came to light in 2009.
- But, the Securities Appellate Tribunal (SAT) quashed the order in 2019.
- SEBI has appealed against the order by the SAT in the Supreme Court.
Source: The Indian Express
