NFRA’s Action against Deloitte

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