Money & Banking

IL&FS case: Deloitte partner Daruvala debarred from audit work for five years

KR Srivats KR Srivats | Updated on July 24, 2020

NFRA also slaps penalty of ₹5 lakh for ‘professional misconduct’

On the heels of disciplinary action against former Deloitte India CEO in the IL&FS Financial Services (IFIN) fraud case, the National Financial Reporting Authority (NFRA) has debarred Rukshad Daruvala, a chartered accountant, for five years.

It has also slapped a penalty of ₹5 lakh for professional misconduct as ‘Engagement Quality Control Reviewer’ in the statutory audit of IFIN for 2017-18.

Daruvala is currently a Partner with Deloitte Haskins & Sells, the audit firm which was joint auditor of IFIN for the year 2017-18.

HC order

The 49-page order will not be given effect to till July 31 as per a Delhi High Court order passed on June 26, NFRA has said. Daruvala had filed a writ before Delhi High Court challenging the jurisdiction of NFRA.

A debarment for five years would mean Daruvala cannot be appointed auditor or an internal auditor or undertake any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate for that period.

NFRA’s view

NFRA had in January this year issued show cause notice to Daruvala as to why action should not be taken against him for his professional misconduct. It has now concluded that Daruvala, being the Engagement Quality Control Reviewer partner, did not exercise due diligence in ensuring audit quality and was grossly negligent in the conduct of his professional duties by not adhering to the requirements as laid down by the relevant statutes.

By being a silent spectator to the entire process, he failed to perform an objective evaluation of the significant judgements made by the Engagement Team, and the conclusions reached in formulating the Audit Report of IFIN, according to the show cause notice.

Daruvala had, as the partner, gone along with the management’s attempt at fraudulent presentation of financial statements, necessitating imposition of severe penalty, according to NFRA.

The show cause notice had alleged that Daruvala in his capacity as Partner had completely failed in documenting his work properly and separately from the work of the Audit team as required by relevant Auditing Standard.

It was alleged that he neither did an independent analysis nor questioned the engagement team regarding issues arising out of RBI inspection and directions. It was further alleged that he failed to carry out review work on timely manner at appropriate stages of engagement, failed in apprising the quality of the work performed and failed to document various requirements as required by SA220 (auditing standard).

The show cause notice had said that he had failed to prepare proper documentation related to discussions with the Engagement Partner, in violation of the SA 230 (another auditing standard).

As a Partner, Daruvala failed to review multiple audit work papers, there is not a single paper in the Audit File where an independent analysis or review has been carried out. Besides, failing to attend the Audit Committee Meetings, the Show Cause Notice alleged.

Published on July 24, 2020

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