The National Financial Reporting Authority (NFRA), sole independent regulator for auditors, has debarred chartered accountant Rajiv Bengali (of Subramaniam Bengali & Associates) for five years, besides imposing a penalty of ₹5 lakh on him.

This punishment has been awarded for his professional misconduct as an engagement partner in the Statutory Audit of Trilogic Digital Media Ltd (TDML) for the financial year 2016-17, said an NFRA order.

Following this, Bengali cannot take up the role of a statutory auditor or an internal auditor of any company or body corporate for five years.

During investigations it was found that the auditor had falsely reported the audit of Cash Flow Statement though TDML’s financial statements did not include the same. The auditor had also attempted to mislead NFRA with a fabricated Cash Flow Statement and was grossly negligent in issuing an unmodified audit opinion on financial statements which did not reflect the true and fair view of the state of affairs of the company.

TDML had recognised Other Miscellaneous Expenditure of Rs 24.06 crore and had written-off Rs 14.87 crore in Sundry Balances, which constituted 54.50 per cent of total expenses of Rs 71.43 crore. Such expenses were 3041 per cent higher than similar expenses of Rs 1.28 crore in the previous year. The auditor had failed to exercise due diligence and maintain professional scepticism on the possibility of material mis-statements due to fraud despite existence of such abnormal/ unusual transactions. The auditor was negligent in evaluating the appropriateness of the management’s assumption of a ‘Going Concern’ despite existence of adverse indicators such as a decrease in revenue from operations from ₹51 crore to ₹17.06 crore, TDML incurred loss of ₹ 54.37 crore, resulting in erosion of networth from ₹58.89 crore to ₹4.52 crore and reduction in inventory from ₹12.71 crore to Nil .  

The other lapses are TDML recognised Deferred Tax Assets (DTA) of Rs 11.96 crore without any certainty of sufficient future taxable income, against which such DTA could be realised. The auditor failed to report inappropriate recognition of DTA; it had violated a large number of Standards on Auditing, accordingly, audit of a listed company was performed in a perfunctory and casual manner.; the auditor had failed to ensure compliance with six accounting standards; TDML did not give disclosures regarding details of transactions in Specified Bank Notes, a requirement mandated subsequent to demonetisation in November 2016. Similarly, TDML did not give a complete disclosure regarding Related Party details and transactions. The auditor was grossly negligent in ensuring compliance with important disclosure requirements as per the Act; the auditor had falsely reported that TDML, a media and content syndication company, was registered as a Non-Banking Finance Company under Section 45 IA of the RBI Act 1934.