NFRA slaps Rs 2.15 cr fine on Coffee Day audit firm

The National Financial Reporting Authority (NFRA) on Thursday imposed a total penalty of Rs 2.15 crore on an audit firm and two auditors for deficiencies in the statutory audit of Coffee Day Enterprises Ltd for the financial year 2019-20.

Venkatesh & Co as well as chartered accountants Dasaraty V and Desikan G have been penalised by the regulator. They were members of the engagement team for the statutory audit of Coffee Day Enterprises Ltd (CDEL).

The two individuals have been debarred from taking up audit work for a certain period of time.

Based on an investigation, the regulator found that the audit firm and its partners who performed the audit as engagement partners and engagement quality control reviewers were guilty of professional misconduct.

Despite having all material on record and having the right of access to records of CDEL's subsidiaries, the auditors did little in terms of audit procedures to alleviate the fraud risk. They deliberately chose to shy away from discharging their statutory duty to report the fraud and to protect the public interest, according to a 34-page order.

For the violations, the watchdog has imposed a fine of Rs 2 crore on Venkatesh & Co, Rs 10 lakh on Dasaraty and Rs 5 lakh on Desikan.

Besides, Dasaraty and Desikan have been debarred for 10 years and 5 years, respectively, from being appointed as an auditor or internal auditor. They have also been restrained from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.

The auditors had given a disclaimer of opinion on Consolidated Financial Statements (CFS) about inter alia appropriateness of transactions with and recoverability of Rs 3,512 crore from MACEL, a promoter entity.

"NFRA's examination revealed that the CDEL's auditors for the FY 2019-20 inter alia ignored all the red flags of frauds available in the above-stated investigation report and chose not to exercise statutory access to the books of accounts and records of CDEL's subsidiaries.

"Further, there were many red flags in the CFS, which were ignored by the auditors. They failed to meet the relevant requirements of the Standards on Auditing (SA) and provisions of the Companies Act 2013...," the order said.

(With agency inputs)