Recently, the National Financial Reporting Authority ( NFRA ) slapped a penalty of Rs 2 crore on the statutory auditor and Rs 15 lakh on two chartered accountants for professional misconduct in the audit of Cafe Coffee Day. The authority debarred the two chartered accountants involved in the audit for a period of 10 years and five years respectively from being appointed as an auditor or internal auditor in any company or body corporate.
The authority found that the auditors did little in terms of audit procedures of Coffee Day Enterprises Limited (CDEL) to alleviate the risk of material misstatement and fraud. It was found that Venkatesh & Co. accepted the audit engagement as statutory auditor of CDEL from FY 2019-20 without first performing mandatory procedures and started audit activities even before obtaining no objection certificate from the resigning auditor – BSR & Associates. It was evident that the auditors deliberately chose to stay away from their statutory duty to report the fraud and protect the public interest.
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The Auditors were charged with violation of clause (iv) of the Companies (Auditor’s Report) Order 2016 (CARO hereafter) as they did not report CDEL’s violation ofsection 185 ofthe Act in respect of loans of Rs 1832.02 crores given to Tanglin Developments Ltd (TDL) and guarantee of Rs 100 crores given by CDEL to lenders of Coffee Day Hotels and Resorts Private Limited (CDH&RPL) .
In the order passed in August, the NFRA states that the auditors did not report fraudulent diversion of funds despite having enough evidence that public money was moved to the promoter’s entity that had no business connection with the listed company.The financial reporting authority said that the auditors “put their blinkers on”. The BSR auditors said they had relied on the work of auditors of subsidiaries.
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