NFRA Debars Deloitte’s IL&FS Engagement Quality Review Partner For Five Years

India's audit regulator has debarred Rukshad Daruwala, Deloitte India's engagement quality control reviewer, from the audit of IL&FS Financial Services Ltd. for a period of five years, and imposed a penalty of Rs 5 lakh on him for his alleged professional misconduct while discharging audit duties for the non-bank lender.

The National Financial Regulatory Authority found Daruwala guilty of professional misconduct under the Chartered Accountants Act and penalised him for his failure to highlight the loss of statutory auditor's independence and inadequacies in the audit engagement team.

The order comes on the heels of an earlier audit quality review of Deloitte Haskins & Sells, where the watchdog found similar lapses. NFRA also recently debarred Deloitte's former audit engagement partner, Udayan Sen, for serious lapses while discharging duties as an auditor of IL&FS Financial Services.

The audit regulator had issued a show cause notice earlier this year seeking Daruwala's response by the end of February. However, he challenged the notice in the Delhi High Court, which refused to grant a stay. The regulator has now pronounced its order even as the proceedings are pending before the high court.

Reasons For Debarment

The show cause notice issued by NFRA has alleged:

• Daruwala failed to review significant judgments and conclusions reached by the audit engagement team. His review wasn't in accordance with the engagement and quality control standard—SQC 1—issued by the Institute of Chartered Accountants of India. This standard lays down the quality control framework for firms that perform audit, assurance and related services.
• He was “grossly negligent” in his duties and didn't exercise due diligence in reviewing the work of audit engagement team, which was involved in several actions and omissions in areas of compliance with auditor independence.
• The engagement quality control reviewer failed to conduct an independent analysis and document his work properly.

Daruwala argued in his defense that the regulator failed to identify any specific matter in its audit quality review, and that he complied with the auditing requirements, quality control standards and relevant documentation. BloombergQuint awaits a response to queries emailed to Daruwala.

The audit regulator listed the following factors which necessitated imposition of penalty and debarment:

• There was a serious lapse by Daruwala in discharging his duty as he chose to remain silent on the loss of statutory auditor's independence during the audit.
• Daruwala failed to exhibit qualities required from an engagement quality control reviewer during an audit assignment.
• There were certain factors which indicated that his professional misconduct was very ‘serious', especially when he went along with the engagement team as well as IFIN's management in agreeing to the misstatements.
• Daruwala went along with the attempt at fraudulent presentation of financial statements.

The Delhi High Court is yet to conclude its hearing on the appeals filed by Rukshad Daruwala and Udayan Sen against NFRA's show-cause notices.