Facts of the Case

  • Information was received from the Registrar of Companies, Mumbai, regarding possible non-compliance with auditing standards by the statutory auditor of Trilogic Digital Media Limited (TDML).
  • TDML, listed on BSE, failed to comply with Accounting Standards and provisions of the Companies Act, 2013 in its FY 2016–17 financial statements.
  • M/s Subramaniam Bengali & Associates was the statutory auditor, with CA Rajiv Bengali as the Engagement Partner.
  • Despite material misstatements, the auditor issued an unmodified audit opinion on 30.05.2017.

Issues Involved

  1. False reporting in the Independent Auditor’s Report.
  2. Failure to comply with multiple Standards on Auditing (SAs).
  3. Failure to report non-compliance with Accounting Standards and provisions of the Companies Act, 2013.

Petitioner’s Arguments (NFRA)

  • The auditor falsely reported that TDML prepared a Cash Flow Statement (CFS), though none was available.
  • Incorrectly reported TDML as registered under RBI Act (NBFC status).
  • Failed to evaluate Going Concern assumptions despite adverse indicators.
  • Ignored unusual expenditures and related party transactions.
  • Did not comply with documentation and retention requirements under SAs.

Respondent’s Arguments (CA Rajiv Bengali)

  • Claimed system breakdown and non-communication with management led to missing audit evidence.
  • Admitted lapses, citing health stress and hurried completion of audit.
  • Called NBFC reporting a “typographical error.”
  • Submitted a Cash Flow Statement later, raising suspicion of afterthought preparation.

Court Order / Findings (NFRA)

  • NFRA held that the auditor engaged in professional misconduct under Section 132(4) of the Companies Act, 2013.
  • Found multiple violations: false reporting, gross negligence, lack of professional skepticism, and failure to comply with statutory duties.
  • The auditor’s explanations were deemed evasive and unacceptable.

Important Clarifications

  • Section 132(4), Companies Act, 2013 empowers NFRA to investigate and take action against professional misconduct.
  • Standards on Auditing (SA 240, SA 450, SA 570, SA 550, SA 230, etc.) were violated.
  • Accounting Standards (AS-3, AS-5, AS-18) and Schedule III requirements were ignored

Link to download the order -https://cdnbbsr.s3waas.gov.in/s3e2ad76f2326fbc6b56a45a56c59fafdb/uploads/2023/01/2023010598-1.pdf

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