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The National Financial Reporting Authority (NFRA) has imposed a penalty of Rs 2 crore on Deloitte Haskins & Sells and fined two chartered accountants for lapses in the audit of Zee Entertainment Enterprises Ltd (ZEEL) during FY2018-19 and FY2019-20.
NFRA has imposed a penalty of Rs 10 lakh on CA A B Jani and has barred him for five 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 corporate.
Besides imposing a fine of Rs 5 lakh on CA Rakesh Sharma, the regulator has banned him for three years for being appointed as an auditor. Jani was Engagement Partner (EP) and Sharma was the Engagement Quality Control Review (EQCR) for the audit of ZEEL for the period FY2019 to FY2020.
In September 2018, the Chairman of ZEEL, 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 NFRA said in a 30-page order.
The bank appropriated the fixed deposit (FD) in July 2019, towards settlement of loan amounts due from seven promoter group companies. 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, the order said.
The statutory auditors failed to identify and report this misrepresentation, it said.
“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,” the regulator said.
This was evident from unauthorised guarantees/securities, premature closure of the FD by the Bank and unauthorised use of ZEEL’s funds for settling the loan of the promoter group companies, with the knowledge of the Chairman of the group and management of ZEEL, NFRA said.
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