NFRA debars CA Rajiv Bengali for 5 Years; imposes Penalty of Rs. 5 Lacs (Audit of Trilogic Digital Media Limited FY 2016-17)

National Financial Reporting Authority (NFRA) has issued Order dt. 19/09/2022 to debar CA Rajiv Bengali for 5 Years and to imposes a monetary Penalty of Rs. 5 Lacs in connection with lapses in Statutory Audit of Trilogic Digital Media Limited (TDML) for FY 2016-17, a company listed on BSE.

NFRA had received information from ROC, Mumbai about likely non-compliance of the prevailing accounting standards by the Company in preparation of the Financial Statements and of auditing standards by CA Rajiv Bengali in conducting such audit.

NFRA has conducted a detailed investigation and has issued Order u/s 132(4) of the Companies Act 2013, after getting reply to it’s SCN, in connection with alleged lapses and professional misconduct by CA Rajiv Bengali of M/s Subramaniam Bengali & Associates, Engagement Partner in conducting Statutory Audit of Trilogic Digital Media Limited (TDML) for the Financial Year 2016-17.

NFRA Order debars CA Rajiv Bengali for 5 Years; imposes Penalty of Rs. 5 Lacs (Audit of Trilogic Digital Media Limited FY 2016-17)

In it’s Order, the NFRA has debarred CA Rajiv Bengali for 5 years from being appointed as statutory/ internal auditor of any company/ body corporate besides imposing a monetary penalty of Rs. 5 lacs, in view of professional misconduct observed/ concluded by NFRA on multiple counts, including on account  of non-compliance with Standards on Auditing (SAs), substantial deficiencies in Audit, abdication of responsibility and inappropriate conclusions on the his part.

NFRA has observed many lapses during it’s investigation process, which have clearly established professional misconduct by CA Rajiv Bengali. Some of such lapses are listed here-under:

i) False reporting that Cash Flow Statement has been audited despite the fact that company’s Financial Statements did not include the Cash Flow Statement. Auditor even attempted to mislead NFRA with fabricated Cash Flow Statement.

ii) Gross negligence by issuing unqualified report whereas Financial Statements did not reflect true and fair view of the state of affairs of the Company.

iii) Failure on the part of Auditor to exercise due diligence and maintain professional skepticism towards possibility of material misstatements due to fraud, despite existence of such abnormal/ unusual transactions, e.g. Company’s Other Miscellaneous Expenditure of Rs. 24.06 crores were substantially higher than previous year’s figure of Rs. 1.28 crores.

iv) Gross negligence in evaluating and reporting on the appropriateness of management’s assumption of ‘Going Concern’, despite existence of adverse indicators, like substantial decrease in Revenue from operations (from Rs. 51 crores to Rs. 17.06 crores), loss incurred Rs 54.37 crores) which resulted in erosion of Net Worth (from Rs 58.89 crores to Rs. 4.52 crores), 100% reduction in Inventory (from Rs. 12.71 crores to Nil), etc.

v) Failure on the part of Auditor to report on inappropriate recognition of Deferred Tax Asset (DTA) by the company (Rs 11.96 crores) without any certainty of sufficient future taxable income, against which such DTA can be realised.

vi) Failure on the part of Auditor to comply with a large number of Standards on Auditing (SAs) while performing audit of a listed company, i.e. audit conducted in a perfunctory and casual manner.

vii) Failure on the part of Auditor to ensure compliance with six number of mandatory Accounting Standards (ASs) issued by the MCA.

viii) Failure on the part of Auditor to ensure compliance with the disclosure requirements as per the Companies Act, 2013, e.g. TDML did not give disclosure regarding details of transactions in Specified Bank Notes subsequent to Demonetization in November 2016, incomplete disclosure regarding Related Party details and transactions, etc.

ix) Fake/ false reporting by the Auditor that TDML is a media and content syndication company which is registered as Non-Banking Finance Company u/s 45 IA of the RBI Act 1934.

NFRA Order dt. 19/09/2022: NFRA debars CA Rajiv Bengali for 5 Years; imposes Penalty of Rs. 5 Lacs (Audit of Trilogic Digital Media Limited FY 2016-17)

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