MUMBAI: Audit firm Deliotte Haskins & Sells  (DHS) has got a rap on its  knuckles from the audit and accounting watchdog , the  National Financial Reporting Authority (NFRA). It said that the former failed to meet relevant requirements of the standards of audit (SAs) and violated the Companies Act in respect of certain significant related party transactions concerning Zee Entertainment Enterprises Ltd  (Zeel) and promoter companies of Essel group chairman Subhash Chandra. 

DHS, Zeel’s auditor then, did not disclose these doubtful  transactions  in Zeel’s financial statements. Hence NFRA has imposed a fine of Rs 2 crore on DHS and it also penalised two CAs employed by the audit firm Rs 10  lakh and five lakh each. It even banned them from practising as CAs for the next five years.

The NFRA order says that in September 2018, the Zeel chairman  who is also the promoter of Essel group, issued a letter to Yes Bank, committing a Rs 200 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 re appropriation 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.”