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NFRA Fines Deloitte, Auditors for Lapses in Zee Entertainment Audit

NFRA fines Deloitte Rs 2 crore and bars auditors for lapses in Zee Entertainment audit, citing violations of professional standards and the Companies Act.
NFRA finds auditors negligent in handling related party transactions and imposes penalties.

New Delhi: The National Financial Reporting Authority (NFRA) has levied a significant fine on Deloitte Haskins & Sells LLP and barred two of its auditors for professional misconduct in their audit of Zee Entertainment Enterprises (ZEEL). The regulator found that the auditors failed to meet professional standards and violated the Companies Act regarding significant related party transactions during the 2018-19 and 2019-20 financial years.

The NFRA imposed a penalty of Rs 2 crore on Deloitte, along with individual fines and debarments for A.B. Jani (Rs 10 lakh, 5-year ban) and Rakesh Sharma (Rs 5 lakh, 3-year ban), who served as Engagement Partner and Engagement Quality Control Review Partner, respectively.

The investigation stemmed from a suo motu examination of ZEEL’s audit files, where the NFRA discovered several irregularities. Notably, the auditors failed to identify and report a significant incident where the ZEEL Chairman issued a letter to Yes Bank, committing a Rs 200 crore fixed deposit as a guarantee for loans to a related promoter group company. This deposit was subsequently appropriated by the bank, despite lacking proper board or shareholder approval.

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The NFRA order highlighted several instances of gross negligence, including a lack of professional skepticism, inadequate challenge of management assertions, and failure to evaluate suspected fraud. These shortcomings allowed unauthorized guarantees, the premature closure of the fixed deposit, and the misuse of ZEEL’s funds to settle loans for the promoter group.

Deloitte, in a statement, acknowledged receipt of the order and indicated it is reviewing the decision to determine its next course of action.

This action by the NFRA underscores the importance of rigorous auditing standards and accountability for auditors in ensuring the accuracy and reliability of financial reporting.

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