The National Financial Reporting Authority (NFRA) has barred ASRMP & Co, auditors of Coffee Day Global (CDGL), for two years after finding it guilty of audit lapses and “professional misconduct” in FY19. In an order issued on Wednesday, the regulator of auditors of larger and listed firms also imposed a penalty of Rs 1 crore on the audit firm.
ASRMP & Co has been debarred “for a period of two years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate”, the NFRA said in its order. It also levied a fine of Rs 10 lakh on one signing partner and Rs 5 lakh each on two signing partners of the firm. They have been disbarred from being appointed as an auditor or internal auditor for five years.
“Based on the investigation and proceedings under section 132 (4) of the Companies Act and after giving them opportunity to present their case, NFRA found the firm and its partners who performed the audit as engagement partners, guilty of professional misconduct and imposes through this order the following monetary penalties and sanctions with effect from a period of 30 days from issuance of this order,” said NFRA.
NFRA launched a probe into the professional conduct of the auditors after market regulator Sebi had shared its investigation in April 2022, revealing diversion of funds worth Rs 3,535 crore from seven subsidiary companies of CDEL, which runs Café Coffee Day, to Mysore Amalgamated Coffee Estate, which is an entity owned and controlled by the promoters of CDEL.
According to NFRA, its investigations revealed that the CDGL’s auditor for FY19 failed to meet the relevant requirements of the standards on auditing and provisions of the Companies Act, 2013, and also demonstrated a “serious lack of competence”. As per the regulator, the auditor also failed to evaluate their potential conflict of interest and failed to maintain their independence from CDGL by having audit and non-audit relationships with a large number of Coffee Day Group companies and the promoters’ family members. Further, they, the regulator said, made an attempt to deceive NFRA by adding more documents to as well as altering the documents in their audit file which amounted to tampering.
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The order said they also failed to exercise professional judgement and scepticism during audit of the transactions of Rs 6,958.91 crore entered fraudulently with MACEL, which were also not disclosed in the related-party disclosures in their entirety and failed to report understatement of loan by Rs 222.50 crore fraudulently given to MACEL and ever-greening of loans through structured circulation of funds among group companies. In all the “pervasive misstatements” amounted to Rs 7,514.10 crore and in spite of that the auditors falsely reported that the financial statements of CDGL for FY19 gave a true and fair view, NFRA noted.
Earlier in January this year, Sebi had imposed a penalty of Rs 26 crore on Coffee Day Enterprises for diversion of funds from subsidiaries to a company related to promoters.
In a separate order, NFRA has also imposed a penalty of Rs 5 lakh on the auditor of MACEL and debarred her for a period of five years from being appointed as an auditor or internal auditor or from undertaking any audit.
