The National Financial Reporting Authority (NFRA) imposed a fine of Rupees 2.15 Crores on the Statutory Auditors of Coffee Day Global Limited.
Pursuant to Securities and Exchange Board of India (SEBI) sharing in April 2022 its investigation regarding diversion of funds worth Rs 3,535 crores from seven subsidiary companies of Coffee Day Enterprises Limited (`CDEL’), a listed company, to Mysore Amalgamated Coffee Estate Limited (`MACEL), an entity owned and controlled by the promoters of CDEL, the NFRA initiated investigations into the professional conduct of the statutory auditors under Section 132(4) of the Companies Act 2013. Coffee Day Global Limited is a subsidiary of CDEL.
Show cause notices were issued to M/s ASRMP & Co., CA A. S. Sundaresha, and CA Madhusudan U A.
The investigation by NFRA revealed that the CDGL’s Stautory auditors for the FY 2019-20 had failed to meet the relevant requirements of the Standards on Auditing and provisions of the Companies Act 2013 and also demonstrated a serious lack of competence and due diligence on the part of the Auditors.
It was also noted that the statutory auditors failed to evaluate their potential conflict of interest and maintain their independence from CDGL by having audit and non-audit relationships with a large number of Coffee Day Group companies and the promoters’ family members and thus violated the Code of Ethics issued by the Institute of Chartered Accountants of India (ICAI) as the professional fees received from Coffee Day Group Entities/Promoters was more than 40% of their total fees.
The Board observed that “The Auditors have made a series of serious departures from the SAs and related Quality Control Standards and Code of Ethics and the Law, in their conduct of the audit of CDGL for FY 2019-20. The poor quality of Audit, tampering of Audit File, the cover-up in terms of submission of additional documents that did not exist in Audit File, incomplete documentation and attempt to mislead through false and evasive replies further compound the professional misconduct on the part of the Auditors.”
The Board imposed a penalty of Rupees 2.15 crores in total on the statutory auditors of Coffee Day Global Limited.
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