Auditor Faces MCA Penalties for non-compliance with Sections 143, 129, and Accounting Standard 18, spanning multiple financial years

MCA has taken decisive action against CA B.K. Sahoo, the auditor of Transmission & Distribution (India) Limited, for violations related to inadequate disclosures in the company's financial statements.

The adjudication process commenced with the appointment of A.K. Sethi as the adjudicating officer, entrusted with the responsibility of handling penalties under Section 450 of the Companies Act, 2013. The inquiry report revealed several instances of contravention of Section 143 of the Act, which outlines the auditor's reporting responsibilities.

One of the key violations pertained to the non-disclosure of related party transactions as required by Accounting Standard 18.

Despite the company receiving rent from an associate company during the financial years 2017-18, 2018-19, and 2019-20, the auditor failed to comment on the lack of disclosure in the audit reports, leading to a violation of Section 143 read with Section 129 of the Companies Act, 2013, read with Accounting Standard 18.

Furthermore, the company omitted the cash flow statement from the balance sheets for the financial years 2017-18 and 2018-19, violating Section 129 read with Section 2(40) of the Companies Act, 2013. The auditor's failure to comment on this lapse compromised the true and fair view of the company's state of affairs, violating Section 143 read with Section 129.

Additionally, the auditor incorrectly stated in the audit report for the financial year 2018-19 that the Companies (Auditor's Report) Order, 2016 (CARO 2016), issued under Section 143(11) of the Companies Act, 2013, was not applicable to the company. However, as a public limited company, CARO 2016 was indeed applicable, and the auditor's statement violated Section 143(11) of the Act.

The adjudication officer issued a notice under Section 454(4) and Section 143, providing the auditor an opportunity to respond. After considering the auditor's reply, which emphasized compliance with Accounting Standards, the adjudication officer imposed a penalty of Rs. 50,000 on CA B.K. Sahoo for violations during the financial years 2017-18 and 2018-19.

FAQs:

Q1. What were the primary violations committed by the auditor?

A1.The auditor, CA B.K. Sahoo, was penalized for failing to disclose related party transactions as required by Accounting Standard 18, omitting cash flow statements, and incorrectly stating the non-applicability of CARO 2016, thereby violating Sections 143, 129, and 143(11) of the Companies Act, 2013.

Q2. What is the significance of the adjudication order?

A2.The adjudication order underscores the importance of adherence to the Companies Act, 2013, and highlights the penalties imposed on auditors for lapses in disclosure and compliance. It serves as a reminder of the crucial role auditors play in upholding corporate transparency and accountability.

Q3.What were the specific sections of the Companies Act, 2013, violated by the auditor?

A3.The auditor violated Section 143 read with Section 129 and Accounting Standard 18, Section 143(3) read with Section 129, and Section 143(11) of the Companies Act, 2013.

Q4. What is the penalty imposed on the auditor?

A4.The adjudication officer imposed a penalty of Rs. 50,000 on CA B.K. Sahoo for violations during the financial years 2017-18 and 2018-19, pursuant to Rule 3(12) and Rule 3(13) of the Companies (Adjudication of Penalties) Rules, 2014.

Q5.What are the consequences of non-payment of the penalty?

A5.The auditor has been given a 90-day window to pay the penalty through e-payment on the Ministry of Corporate Affairs website. Failure to pay the penalty within the prescribed time limit may result in consequences outlined in Section 454(8) of the Companies Act, 2013.

Q6.What is the appeal process available to the auditor?

A6.The auditor can file a written appeal with the Regional Director (ER), Ministry of Corporate Affairs, Kolkata, within 60 days of receiving the order, setting forth the grounds of appeal and accompanied by a certified copy of the adjudication order.