The National Financial Reporting Authority ( NFRA ) has imposed a record penalty of ₹10 crore on KPMG affiliate BSR & Associates LLP, marking the highest penalty ever levied by the regulator.
Two of the firm’s auditors have also been barred for alleged professional lapses during the 2018-19 audit of Coffee Day Enterprises. This action follows an investigation by capital markets regulator SEBI into the alleged diversion of ₹3,535 crore from seven subsidiaries of Coffee Day Enterprises to a promoter-owned entity.
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After conducting its own review, the NFRA has prohibited auditors Aravind Maiya and Amit Somani from auditing for 10 and 5 years, respectively. Additionally, Maiya faces a ₹50 lakh penalty, while Somani has been fined ₹25 lakh. As the engagement partner, Maiya played a central role in the 2018-19 Coffee Day audit, while Somani, responsible for quality control, was expected to review the audit at critical stages.
It was alleged that the Firm and the EP failed to exercise professional judgement & scepticism during the audit of suspected fraudulent diversion of Rs 130.55 crores by CDEL’s subsidiary to an individual (Section C- II of this Order).
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The NFRA flagged “substantial deficiencies in audit, abdication of responsibility, and the issuance of a false and misleading unmodified audit report.” The order, signed by NFRA chairman Ajay Bhushan Prasad Pandey and two full-time members, highlighted multiple lapses in the audit process, violations of audit standards, and non-compliance with Quality Control Standards and the Code of Ethics by the auditors of Coffee Day Enterprises Ltd (CDEL).
The order also emphasised that the auditors failed to report the “fraudulent diversion of funds,” despite clear evidence that public money was diverted to a promoter’s entity with no legitimate business connection to Coffee Day. In response to the order, a BSR & Associates spokesperson expressed disappointment, stating that the firm is assessing its next steps but remains committed to the highest standards of professionalism, quality, and integrity.
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The NFRA noted that the auditors relied on SA 600 provisions, depending on the work of auditors of the subsidiaries, even though CDEL’s investments in these subsidiaries amounted to a staggering ₹1,937 crore, representing 89% of the standalone balance sheet. The regulator also criticised the auditors for not questioning the business rationale behind loans extended by Coffee Day to a related party, disguised as an advance for purchases, where the loan amount was over five times the purchase value.
The order highlighted that the auditors’ reliance on management explanations, under the guise of good faith, led to a complete disregard for the professional scepticism expected of a prudent auditor. BSR & Associates, which served as the statutory auditors of Coffee Day Enterprises for 2018-19, resigned in 2019-20 citing low fees. The 2018-19 audit report was signed on May 24, 2019, and the engagement partner, Aravind Maiya, resigned from BSR & Associates on May 28, 2019, subsequently surrendering his certificate of practice.
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This verdict is one of many recent NFRA orders aimed at cracking down on negligent auditors. The regulator has already issued orders debarring and penalising auditors involved in corporate scandals such as IL&FS and DHFL.
According to a regulatory official, “NFRA orders are intended to reinforce the importance of auditors adhering to high professional standards and accurately presenting a company’s financial position to shareholders. Deliberate lapses will not be tolerated.”
The NFRA has also initiated an annual inspection of major audit firms, focusing on their processes and standards. Additionally, the regulator is working to sensitise audit panels and senior executives of large listed companies about their responsibility in presenting accurate corporate financial statements. These measures are part of broader efforts to strengthen India’s audit and accounting framework, reduce corporate fraud, and protect shareholders’ interests in a rapidly growing economy
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