NFRA Slaps 2 Cr Penalty on Deloitte for Zee Entertainment Audit Lapses, Two Partner CAs get Tanked [Read Order]

The National Financial Reporting Authority (NFRA) has imposed a hefty penalty of ₹2 crore on Deloitte Haskins & Sells LLP for serious lapses during its audit of Zee Entertainment Enterprises Limited (ZEEL) for the financial years 2018-19 and 2019-20. The decision, announced on December 23, 2024, also includes sanctions against two chartered accountants, A.B. Jani and Rakesh Sharma, who were directly involved in the audit.

The NFRA investigation uncovered several instances of professional misconduct and negligence by the audit firm and its partners. Among the most critical lapses was the auditors' failure to detect and report a significant related-party transaction involving a ₹200 crore fixed deposit (FD) held by ZEEL with Yes Bank. The deposit was prematurely appropriated in July 2019 by Yes Bank to settle loans of seven promoter group companies, including Essel Green Mobility Ltd, without the requisite approvals from ZEEL's board or shareholders.

The investigation established that ZEEL’s chairman, Subhash Chandra, had issued a letter in September 2018 committing the FD as security for loans taken by group companies. The auditors failed to identify and report this transaction as a material misrepresentation and did not exercise adequate professional skepticism or diligence during their audit.

The following penalties were imposed by NFRA on the Auditor and Partner CAs for lapses in audit –

Deloitte Haskins & Sells LLP - A monetary penalty of ₹2 crore and a mandate to improve audit practices within 90 days.

CA A.B. Jani - A penalty of ₹10 lakh and a five-year ban from serving as an auditor or conducting any statutory audits.

CA Rakesh Sharma - A penalty of ₹5 lakh and a three-year ban on similar professional engagements.

Failure to Investigate Red Flags - The auditors did not reportedly adequately investigate Yes Bank’s premature closure of the FD or challenge the management's explanations. ZEEL’s internal communication and Yes Bank's records suggested that the promoters were aware of and possibly complicit in the appropriation, yet the auditors did not explore these links.

Lack of Professional Skepticism - Despite Yes Bank’s letter highlighting governance issues within ZEEL and the involvement of promoters, the auditors failed to act on this critical information. They also disregarded communications that could have clarified the suspicious circumstances surrounding the FD’s use.

The audit report issued by Deloitte did not disclose the material irregularities. The NFRA found that the auditors ignored evidence that could have triggered a fraud investigation under Section 143(12) of the Companies Act, 2013.

The NFRA debarment order highlights the importance of audit quality and the role of professional skepticism in ensuring corporate transparency. It sends a strong message to audit firms about the consequences of failing to meet their statutory obligations.

Deloitte Haskins & Sells LLP has been directed to submit an action plan addressing audit deficiencies within three months. The penalties and bans imposed on the partners underscore the need for individual accountability in professional misconduct cases.

This development comes amid increasing scrutiny of corporate governance practices in India, particularly in listed companies. With the NFRA exercising its authority to uphold the integrity of financial reporting, the case sets a precedent for stricter enforcement of auditing standards.

Industry experts view the NFRA decision as a necessary step to restore trust in the auditing profession. However, some argue that the regulatory framework needs further strengthening to prevent such lapses in the future.

To Read the full text of the Order CLICK HERE

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