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NFRA said that the listed CDEL provided loans to a related party.
| Photo: WikiMedia Commons2 min read Last Updated : Aug 20 2024 | 10:55 AM ISTA regulator has slapped a penalty of Rs 10 crore on audit firm BSR - Associates LLP and Rs 75 lakh on two chartered accountants for lapses in the audit of Coffee Day Enterprises Limited (CDEL) which runs the Cafe Coffee Day chain.The National Financial Regulatory Authority (NFRA) barred Aravind Maiya and Amit Somani, partners at BSR - Associates, for 10 years and five years from being appointed as an auditor or internal auditor or undertaking any audit of financial statements of any company or body corporate.NFRA said in an order that the auditors did not report fraudulent diversion of funds despite having enough evidence that public money was moved to the promoter's entity that had no business connection with the listed company.“The auditor’s reliance on management explanation and using the ruse of good faith understanding of management explanation resulted in their having totally flayed the professional skepticism required of a prudent auditor,” it said.The financial reporting authority said that the auditors “put their blinkers on” and when asked for an explanation sought refuge in the provision of Standard On Auditing 600, an auditing standard that establishes the responsibilities of principal auditors when utilising the work of other auditors.
The BSR auditors said they had relied on the work of auditors of subsidiaries.
CDEL’s investments in subsidiaries amounted to Rs 1,937 crore, constituting 89 per cent of the standalone balance sheet.NFRA said that the listed CDEL provided loans to a related party in the garb of an advance for purchases.
However, the loan amount was five times the value of purchases and this was not questioned by the auditor for its business rationale.NFRA started investigating CDEL in 2022 after getting information from the Securities and Exchange Board of India about fund diversion of Rs 3,535 crore from seven subsidiary companies.First Published: Aug 20 2024 | 10:55 AMIST