The National Financial Reporting Authority (NFRA) has imposed a significant penalty on Deloitte Haskins & Sells LLP, fining the firm Rs 2 crore for professional misconduct linked to its audit of Zee Entertainment Enterprises (ZEEL) for the fiscal years 2019 and 2020. In addition to this, two chartered accountants (CAs) have each been penalized Rs 7.5 lakh, totaling Rs 15 lakh, for their involvement in the same case.
In its investigation of ZEEL, the NFRA found that Deloitte auditors had failed to address multiple red flags, overlooking critical issues such as the role of the company’s promoters, the justification for fixed deposit allocations, and transactions between ZEEL and its group companies. The authority determined that ZEEL had engaged in unauthorized financial dealings, including the misappropriation of funds and related-party transactions, all of which occurred without proper approval from the audit committee, the board, or shareholders.
The NFRA’s ruling emphasized the auditors’ lack of due diligence and their failure to uphold the rigorous standards of audit required for public interest entities. “We have reasons to believe that the auditors did not exercise due diligence in ensuring the audit quality expected in an audit of a public interest entity and were grossly negligent in their professional duties,” the NFRA stated in its order.
The order stated: “Based on the examination of the Audit Files, and responses of the Audit Finn to our queries and other records, we were of the prima facie view that the Auditors had not discharged their professional duties under the Act as well as the Standards on Auditing (SA). Consequently, an SCN was issued to the Auditors asking them to show cause why action under Section 132(4) of the Act should not be initiated against them for professional misconduct.”
In response, a spokesperson for Deloitte acknowledged receipt of the order, confirming the firm’s intention to review it and assess its next steps. The spokesperson reiterated Deloitte’s commitment to maintaining the highest standards of audit quality.
Part 5 of the executive summary in NFRA’s order dated December 23, 2024, stated: “After examining the detailed submissions, including written and oral, this Order concludes that the Auditors failed to meet the relevant requirements of the SAs and violated the Act in respect of certain significant related party transactions. In September 2018, the Chairman of ZEEL, who is also the promoter of Essel Group of Companies, issued a letter to Yes Bank, committing Rs200 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 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 statutory auditors failed to identify and report this misrepresentation. 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 as required under Section 143(12) of the Act, which 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.”