NFRA Fines Deloitte Rs 2 Crore For Lapses In Zee Entertainment Audit

The National Financial Reporting Authority has fined Deloitte Haskins & Sells LLP Rs 2 crore for alleged lapses in auditing Zee Entertainment Enterprises Ltd. during the 2018-19 and 2019-20 financial years.

In addition to the fine, A B Jani, the engagement partner, has been imposed a penalty of Rs 10 lakh and banned from taking on any audit work for five years. Rakesh Sharma, the engagement quality control review partner, was fined Rs 5 lakh and barred from audit work for three years.

The regulator conducted a suo motu review of the audit file for the statutory audit of Zee Entertainment for the specified periods to determine if the auditor had engaged in any professional misconduct.

After reviewing the audit file, the audit firm's responses to queries, and other records, the NFRA found that the auditors had not fulfilled their professional responsibilities as per the Companies Act and the Standards on Auditing.

In its Dec. 23 order, spanning 30 pages, the NFRA stated that the auditors failed to comply with the relevant SA requirements and violated the Act in relation to 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 five and three 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.

In September 2018, the ZEEL chairman, who is also the promoter of Essel Group of companies, issued a letter to Yes Bank, committing Rs 200 crore fixed deposit of ZEEL as a guarantee for the loans given by Yes Bank to a promoter group company Essel Green Mobility Ltd.

The bank appropriated the fixed deposit in July 2019 towards the settlement of loan amounts due from seven promoter group companies.

"Neither the creation and maintenance of fixed deposit nor its reappropriation by the bank was with the approval of the board or shareholders of the company. The statutory auditors failed to identify and report this misrepresentation," the regulator said.

Further, NFRA said its examination showed that the auditors were grossly negligent, failed to apply professional scepticism and due diligence, did not adequately challenge the management's assertions, and failed to evaluate the reporting of suspected fraud.

The regulator's order revealed that unauthorised guarantees and securities, premature closure of fixed deposits by the bank, and the improper use of ZEEL's funds to settle loans of promoter group companies occurred with the knowledge of the group's chairperson and ZEEL's management.

A show-cause notice was issued to the audit firm and two auditors, and after reviewing their responses, the regulator determined that they were guilty of professional misconduct. This led to the issuance of the latest order.