The watchdog has imposed a monetary penalty of Rs 2 crore on Deloitte Haskins & Sells LLP
New Delhi:
The National Financial Reporting Authority (NFRA) has imposed a fine of Rs 2 crore on Deloitte Haskins & Sells LLP as well as penalties on two chartered accountants for lapses in the auditing of Zee Entertainment Enterprises Ltd during the 2018-19 and 2019-20 financial years.
Along with slapping a fine of Rs 10 lakh, A B Jani has been barred from taking up any audit work for 5 years, while the fine is Rs 5 lakh on Rakesh Sharma, and the debarment period is 3 years.
Jani was the Engagement Partner (EP), and Sharma was the Engagement Quality Control Review (EQCR) Partner for the audit of the company for 2018-19 and 2019- 20.
The regulator had suo motu examined the audit file for the statutory audit of Zee Entertainment Enterprises Ltd (ZEEL) for the given periods to assess whether the auditor committed any professional misconduct.
After examining the audit file and responses of the audit firm to its queries as well as other records, NFRA said prima facie auditors had not discharged their professional duties under the Companies Act as well as the Standards on Auditing (SA).
In its 30-page order dated December 23, NFRA said auditors failed to meet the relevant requirements of the SAs and violated the Act in respect of certain significant related party transactions. The watchdog has imposed a monetary penalty of Rs 2 crore on Deloitte Haskins & Sells LLP, apart from penalties on Jani and Sharma.
Both individuals have been debarred 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,” for varying periods.
The ban on Jani and Sharma is for 5 and 3 years, respectively.
A Deloitte spokesperson said it has received the NFRA order against the firm and two retired partners.
“We are currently reviewing the order to determine our next course of action,” the spokesperson said in a statement.
Meanwhile, the NFRA has highlighted significant shortcomings in the audit practices of BSR & Co LLP, a KPMG sub-licensee, particularly in related party transactions.
The audit regulator’s inspection was conducted in August 2024, which reviewed three BSR audit engagements from the FY ending March 2022 and March 2023.
In a 13-page inspection report, NFRA found lapses related to auditing standards and compliance with the Companies Act 2013. Among the critical observations were deficiencies in verifying related party transactions.
The inspection report also revealed a complex series of transactions initiated by an unnamed company, involving its promoter entity.
NFRA noted that the company raised Rs 550 crore through non-convertible debentures (NCDs) and invested Rs 650 crore in compulsorily convertible preference shares (CCPS) of the promoter entity. This transaction was reportedly used to facilitate debt repayment by the promoter entity.NFRA also flagged the lack of a documented business rationale for the investment, suggesting the funds were effectively diverted for personal use by the promoter.
Further, the inspection highlighted that the arrangement likely violated Section 185 of the Companies Act, which prohibits companies from extending loans directly or indirectly to directors or their relatives, the regulator said.
In its assessment, NFRA also observed that the company’s financial statements ambiguously disclosed the transactions, failing to highlight their substance.
It also criticised the audit team’s documentation for not addressing these compliance issues adequately.
The rules, which mandate auditors to inquire whether personal expenses have been charged to the revenue account, were overlooked.