Order No. 019/2024 dated 05.07.2024
\r\n\r\nNational Financial Reporting Authority (NFRA), India’s independent regulator for auditing and accounting matters, issued Order No. 019/2024 on 5th July 2024 under Section 132(4) of the Companies Act, 2013, penalizing:
\r\n\r\nfor serious professional misconduct in the statutory audit of Vikas Proppant and Granite Limited for FY 2020-21.
\r\n\r\nThe action was initiated after information was received from Securities and Exchange Board of India (SEBI) highlighting accounting irregularities and audit failures.
\r\n\r\nNFRA’s investigation revealed that despite multiple red flags in the financial statements, the Engagement Partner issued an unmodified audit opinion.
\r\n\r\nThe regulator found widespread non-compliance with:
\r\n\r\nNFRA categorized the failures across critical audit areas, reflecting gross negligence and lack of due diligence expected in audits of Public Interest Entities (PIEs).
\r\n\r\nNFRA reiterated that absence of documentation equals absence of compliance.
\r\n\r\nThe EP admitted that opening balances were not verified.
\r\n\r\nThis reflects foundational audit failure.
\r\n\r\nReceivables were more than seven times annual sales.
\r\n\r\nNo ECL provisioning was made.
\r\nNo audit testing performed.
\r\nNo qualification in audit report.
NFRA held that auditors cannot rely on management’s absence of policy to justify non-provisioning.
\r\n\r\nRed flags included:
\r\n\r\nYet no going concern evaluation documentation existed.
\r\n\r\nKey alarming figures:
\r\n\r\nDespite this:
\r\n\r\nYet the auditor certified compliance.
\r\n\r\nInd AS 16 clearly states depreciation does not cease merely because an asset is idle.
\r\n\r\nAudit documentation is the backbone of defensible audit quality.
\r\n\r\nOne of the most serious lapses noted was non-compliance with SA 505 – External Confirmations.
\r\n\r\nThe company had:
\r\n\r\nHowever:
\r\n\r\nNFRA clearly held that obtaining sufficient and appropriate audit evidence is the auditor’s responsibility, not management’s.
\r\n\r\nIn today’s regulatory environment, manual balance confirmations create operational inefficiencies and documentation gaps.
\r\n\r\nDigital confirmation platforms now enable:
\r\n\r\nFor example, tools like WrapTax Bulk Confirmation Tool help auditors comply with SA 505 effectively by digitizing and securing the confirmation process.
\r\n\r\n๐ You can explore the tool here:
\r\n๐ https://www.wraptax.com/bulkconfirmation
Such technology solutions assist in:
\r\n\r\nIn light of NFRA’s strict stance, technology-backed confirmations are no longer optional — they are becoming a practical necessity.
\r\n\r\nNFRA held the Engagement Partner guilty under multiple clauses of the Chartered Accountants Act, 1949, including:
\r\n\r\nThe Audit Firm was also held liable for systemic failure in quality control mechanisms.
\r\n\r\nUnder Section 132(4)(c) of the Companies Act, 2013:
\r\n\r\nโ Monetary Penalty
\r\n\r\nโ Debarment
\r\n\r\nThe order becomes effective 30 days from issuance.
\r\n\r\nAs professionals, this order reinforces critical principles:
\r\n\r\n๐น Documentation is Non-Negotiable
\r\n\r\nVerbal explanations cannot replace audit evidence.
\r\n\r\n๐น Professional Skepticism is Mandatory
\r\n\r\nReceivables disproportionate to sales demand investigation.
\r\n\r\n๐น Ind AS Compliance Must Be Independently Evaluated
\r\n\r\nIdle assets still require depreciation.
\r\n\r\n๐น External Confirmations Must Be Obtained
\r\n\r\nSA 505 compliance cannot be delegated to management.
\r\n\r\n๐น Quality Control is a Firm-Level Responsibility
\r\n\r\nFirms must ensure robust engagement supervision and EQCR appointment.
\r\n\r\nThis order by NFRA is a strong reminder that statutory audit is a public trust function, not a routine compliance activity.
\r\n\r\nFailure to comply with Standards on Auditing, Ind AS, and statutory requirements will attract regulatory scrutiny and sanctions.
\r\n\r\nFor Chartered Accountants and audit firms, the message is clear:
\r\n\r\nAudit quality, documentation, independence, and scepticism are not optional — they are the foundation of the profession.
","created_at":"2026-02-20T12:50:56.515139+05:30","updated_at":"2026-02-20T12:53:27.727621+05:30","slug":"nfra-penalizes-audit-firm-engagement-partner-for-g","image":"https://wraptaxmedia.s3.amazonaws.com/blog_images/22552cce-8acf-4ada-b749-2f7757cc1e05.png","keywords":"NFRA Order 019/2024\r\nAudit Negligence\r\nSA 505 External Confirmation\r\nInd AS Non-Compliance\r\nProfessional Misconduct Penalty","tags":[{"id":7,"name":"Updates"},{"id":5,"name":"Income Tax"},{"id":4,"name":"High Court"},{"id":8,"name":"SA505"},{"id":9,"name":"External Confirmation"},{"id":18,"name":"Accounts Receivable"},{"id":20,"name":"Accounts Payable"},{"id":25,"name":"CASE STUDY"}],"catagory":[{"id":2,"name":"Case Study"},{"id":5,"name":"Updates"},{"id":6,"name":"Income Tax"},{"id":7,"name":"SA505"},{"id":8,"name":"External Confirmation"}],"author":{"id":411,"name":"VASHU GUPTA","photo":"https://wraptaxmedia.s3.amazonaws.com/author_photos/4a469bc6-4bd0-43a2-86fb-aca525fa55d0.jpg","qualification":"CA Finalist","bio":"Finance & Taxation Enthusiast"}},{"title":"REFUND OF ITC NOT TO BE REJECTED MERELY BECAUSE OF SUSPICION IF THE SUPPLIER HAS BEEN BOOKED FOR ISSUING FAKE INVOICES โ DELHI HIGH COURT","summary":"The Honโble High Court of Delhi vide its order dated 10.03.2023 in the matter of M/s Balaji Exim Vs. Commissioner, CGST and Ors. in W.P. (C) โ 10407/2022 and W.P. (C) โ 10423/2022, held that the refund of unutilized credit cannot be denied merely because the allegations of any fake credit have been levelled against its supplier of goods unless it is established that the petitioner has not received the goods or paid for them. The Petitioner is not required to examine the affairs of its supplying dealers.","content":"The Hon’ble High Court of Delhi vide its order dated 10.03.2023 in the matter of M/s Balaji Exim Vs. Commissioner, CGST and Ors. in W.P. (C) – 10407/2022 and W.P. (C) – 10423/2022, held that the refund of unutilized credit cannot be denied merely because the allegations of any fake credit have been levelled against its supplier of goods unless it is established that the petitioner has not received the goods or paid for them. The Petitioner is not required to examine the affairs of its supplying dealers.
\r\n\r\nThe Petitioner filed the writ petition before the Hon’ble High Court challenging the common Order-In-Appeal dated 31.03.2022, whereby two separate appeals preferred by the petitioner against the Order-In-Original Nos. ZU0707210034420 dated 03.07.2021 and ZT0707210034442 dated 02.07.2021, respectively were dismissed.
\r\n\r\nFacts of the Case: –
\r\n\r\nOn the behalf of the respondents, reference was made to letter dated 16.04.2021 issued by the CGST Authorities, Kolkata, which indicates that M/s Shruti Exports was found to be an existing dealer and its sole proprietor was also a Director of M/s BVN Alloys Pvt. Ltd. Both the dealers were found existing at Room No.464, 4th Floor, 138 Biplabi Rashbehari Basu Road, Kolkata-700001. It was found that M/s Shruti Exports had availed of CGST and SGST totaling โน1,35,21,489/- and Cess amounting to โน21,76,132/- from the taxpayers against whom cases were booked for issuing fake invoices.
\r\n\r\nOn the behalf of the Petitioner, it was submitted that none of the said suppliers, except one, PSSM Commercial Pvt. Ltd., had made any supplies chargeable to Cess. Thus, the only invoice in respect of which supplies received by M/s Shruti Exports, which could be assumed to be further supplied to the petitioner, was from PSSM Commercial Pvt. Ltd. However, CGST and SGST paid by PSSM Commercial Pvt. Ltd. was only Rs. 9,52,220/-.
\r\n\r\nHeld: –
\r\n\r\nThe Hon’ble Court with the above findings, allowed the writ petitions with the directions to the Respondents to immediately process the Petitioner’s applications for refund of ITC including Cess. It is clarified that in the event the respondents are able to find material to establish the allegations regarding non-supply of any goods by M/s Shruti Exports to the petitioner, it would be open for the respondents to initiate such action as may be warranted in accordance with law.
","created_at":"2023-05-10T13:19:06.512557+05:30","updated_at":"2023-10-17T12:48:01.558479+05:30","slug":"refund-itc-not-rejected-merely-suspicion","image":null,"keywords":"ITC rejection, GST Case Law, Delhi High Court, Fake Invoice","tags":[{"id":1,"name":"GST"},{"id":4,"name":"High Court"}],"catagory":[{"id":2,"name":"Case Study"}],"author":{"id":1,"name":"DEEPAK TAYAL","photo":"https://wraptaxmedia.s3.amazonaws.com/author_photos/Deepak_Tayal_pic.jpg","qualification":"Chartered Accountant","bio":"LLB | BRSR | FAFD | BlockChain | Artificial Intelligence | IFRS"}}]}