The National Financial Reporting Authority (NFRA) has imposed a fine of Rs 2 crore on Deloitte Haskins & Sells, and penalties on two chartered accountants (CAs) for lapses in the auditing of Zee Entertainment Enterprises (ZEEL) for FY19 and FY20.
The audit regulator found that the Deloitte’s auditors failed to identify and report misrepresentation, and were “grossly negligent”.
In a 30-page order, the NFRA said that prima facie, the auditors had not discharged their professional duties under the Companies Act as well as the standards on auditing (SA).
In September 2018, the chairman of ZEEL, who is also the promoter of Essel Group of Companies, issued a letter to Yes Bank, and committed Rs 200 crore of fixed deposit (FD) of ZEEL as a guarantee for the loans given by the bank to group company Essel Green Mobility. In July 2019, the bank appropriated the FD towards the settlement of loan amounts due from seven promoter group companies.
However, the NFRA noted that neither the creation and maintenance of FD, nor its reappropriation by the bank was with the approval of the board or shareholders of the company. “Our examination showed that the auditors were grossly negligent, failed to apply professional skepticism and due diligence, did not adequately challenge the management’s assertions, and failed to evaluate reporting of suspected fraud as required under Section 143(12) of the Companies Act,” the NFRA order said.
As for the ZEEL’s auditors, the NFRA has imposed Rs 10-lakh penalty and five years of debarment for AB Jani, and a Rs 5-lakh penalty, and three years of debarment for Rakesh Sharma.
The NFRA also cracked down on two CAs who were doing statutory auditing work for DB Realty in FY16.
It said that following markets regulator SEBI sharing information on misstatements in the financial statement of DB Realty, the regulator had initiated a suo moto action on the professional conduct of the statutory auditors. In its probe, the NFRA found a series of audit lapses. For instance, “the auditors failed to obtain sufficient appropriate audit evidence during audit of loans and advances of Rs 1,326.92 crore given by DB Realty, out of which Rs 1,079 crore was given to related parties many of which had negative net worth,” the order said.
Based on investigation, the NFRA found the two auditors guilty of professional misconduct and imposed a penalty of Rs 5 lakh and five years of debarment for Chetan Desai, and a Rs 3-lakh penalty and three years of debarment for Rakesh Rathi.
