Top auditor repeatedly caught in a maelstrom

With the erstwhile auditor of Jet Airways also under the scanner after July 19 ED searches on the failed airline's multiple locations, interesting facts have emerged  about the auditor's etymology. Repeatedly caught in a maelstrom and fighting SEBI's challenges, Chaturvedi & Shah has been found wanting in several recent high profile corporate fraud cases.

The Mumbai-based firm was the statutory auditor for the scandal-hit NBFC DHFL too between 2016 and 2019. NFRA found discrepancies in the DHFL audit process and had prepared a draft audit quality review after working on it for 15 long months. However, this was challenged in the Bombay High Court.

Complicating matters, in June this year, the Bombay High Court instructed NFRA to hear the case of Chaturvedi & Shah LLP, the statutory auditor for Dewan Housing Finance Corp. Ltd, for 2017-18. The firm had challenged NFRA's jurisdiction for periods predating its creation, following an audit quality review of the financial institution conducted by the audit regulator.

Following the Bombay HC's directive, NFRA is preparing to determine its jurisdiction. Last Monday the top court dismissed a special leave petition filed by the audit firm, challenging Bombay high court's order, the publicly available court records showed.

Earlier this year, NFRA had issued separate orders for individual auditors and firms responsible for branch audits of DHFL across states in FY18, alleging deficiencies.

Muddying the waters further, in April this year, the market regulator penalised two former auditors of CG Power and Industrial Solutions Ltd for rule violations, according to an order published on the regulator's website.

SEBI levied a penalty of Rs 500,000 each on the auditors, Chaturvedi & Shah, and K. K. Mankeshwar & Co.

In its order, the market regulator stated that it is of the view that "the disclosure of true and fair information is crucial for investor protection and to maintain and restore their confidence in the securities market. The false and misleading disclosures in the audit report as found in this case are not only detrimental to the interests of investors but also endanger integrity of the securities markets."

Going on the offensive, it contended that this was also a fit case where SEBI needs to send a tough message to professionals who associate themselves with the securities market so as to prevent them from indulging in such acts of omissions and commissions as found in this case.

The SEBI said instead of working in the interest of the shareholders of CG Power, the auditors "facilitated the scheme of cleaning up the books of accounts of CG Power".

And that despite being aware of the irregularities and misstatements in the financial statements of CG Power, the auditors "certified the books as true and fair".

In fact, in December 2021, Audit regulator ICAI  to CBI and State Bank of India (SBI) seeking information on the signing partners of three statutory auditors between FY'2014-15 and FY' 2018-19 in the CG Power & Industrial Solutions matter.

The allegation was that the signing partners of these three audit firms -- Sharp & Tannan, Chaturvedi & Shah (joint auditor for FY 16 to FY 18), and K.K. Mankeshwar & Co (joint auditor for FY18 and FY19) -- signed off on the audited balance-sheets for these years without highlighting any of the fraudulent transactions in CG Power of over Rs 5,000 crore.

"We have today written to the CBI and SBI seeking specific information on the CG Power matter. Based on their response, we will take a decision on whether ICAI will initiate disciplinary proceedings against the signing partners of these audit firms," Nihar Jambusaria, President, Institute of Chartered Accountants of India, had said at the time.