NFRA imposes fine of Rs 2 crore on Deloitte for lapses in audit of Zee Entertainment

The National Financial Reporting Authority (NFRA) has imposed a penalty of Rs 2 crore on audit firm Deloy Haskins & Sells LLP for serious lapses in the audit of Zee Entertainment Enterprises Limited (ZEEL). Apart from this, fine and ban have also been imposed on two chartered accountants.

• AB Jani (Engagement Partner):
  • Fine of ₹10 lakh.
  • Ban on doing any audit work for 5 years.
• Rakesh Sharma (Engagement Quality Control Review Partner):
  • Fine of ₹5 lakh.
  • Ban on audit work for 3 years.

this matter Financial Year 2018-19 and 2019-20 where NFRA alleged breach of professional duties and disregard for auditing standards.

case details

NFRA took suo motu cognizance and examined the audit file of ZEEL. Its purpose was to assess whether the audit firm and its chartered accountants fulfilled their responsibilities.

What did the investigation reveal?

1. Violation of standards:
   • auditors Companies Act And Auditing Standards (SA) Failed to act as per.
   • Important Related Party Transaction Was not reported.
2. Fixed Deposit Case:
   • In September 2018, the chairman of Zee Entertainment and promoter of Essel Group issued a letter to Yes Bank.
   • Yes Bank promoter group company Essel Green Mobility ZEEL’s fixed deposit of ₹200 crore was kept as guarantee for the loan.
   • In July 2019, the bank encashed this fixed deposit to settle the debts of 7 promoter group companies.
3. No approval of the board and shareholders:
   • No approval was taken from ZEEL’s board of directors or shareholders for this transaction.
   • The auditors failed to identify and report this violation.

Auditor’s negligence

NFRA’s findings:

1. Serious Negligence:
   • Audit firms and auditors did not properly evaluate fraud reporting.
2. Show cause notice:
   • NFRA issued show cause notices to Deloitte and both the auditors.
   • After reviewing their answers they guilty of professional misconduct Found.

NFRA order

Released on 23rd December 30 page orders NFRA clarified in:

• Deloy fined ₹2 crore.
• Separate fines and ban on audit work on chartered accountants AB Jani and Rakesh Sharma.
• Serious criticism regarding negligence and violation of standards in the audit process.

Why is this issue important?

1. Transparency in Auditing:
   • This case underlines the need for adherence to auditing standards and transparency.
2. Related Party Transactions:
   • The role of audit is important to ensure the financial health of the company and accountability of management.
3. NFRA action:
   • This move will make auditing firms more accountable for their obligations.