NFRA Imposes Rs 2.15 Crore Penalties on Audit Firm and Two Auditors for Coffee Day Enterprises Audit Lapses

The National Financial Reporting Authority (NFRA) has levied fines amounting to Rs 2.15 crore on an audit firm and two auditors. This action pertains to lapses found in the statutory audit of Coffee Day Enterprises Ltd (CDEL) for the financial year 2019-20. The audit firm Venkatesh & Co, along with chartered accountants Dasaraty V and Desikan G, were penalised by the regulator.

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The NFRA's investigation revealed that the auditors failed to perform adequate audit procedures despite having access to all necessary records. They neglected their duty to report fraud, thereby failing to protect public interest. The order highlighted that the auditors had all relevant materials but chose not to address the fraud risk adequately.

Penalties and Debarment

Venkatesh & Co received a fine of Rs 2 crore, while Dasaraty V and Desikan G were fined Rs 10 lakh and Rs 5 lakh, respectively. Additionally, Dasaraty has been barred from auditing for ten years, and Desikan for five years. Both are prohibited from conducting audits of financial statements or internal audits for any company or corporate body during this period.

The auditors had issued a disclaimer of opinion on the Consolidated Financial Statements (CFS), particularly concerning transactions with MACEL, a promoter entity, and the recoverability of Rs 3,512 crore. The NFRA's examination found that the auditors ignored significant red flags indicating fraud in the CFS.

Failure to Address Red Flags

The NFRA noted that during the FY 2019-20 audit, the auditors overlooked numerous indicators of fraud detailed in an investigation report. They failed to utilise their statutory right to access CDEL's subsidiaries' books and records. The auditors did not comply with the Standards on Auditing (SA) and provisions of the Companies Act 2013.

The NFRA's findings emphasise the importance of auditors fulfilling their responsibilities diligently. By neglecting red flags and not exercising their rights, they compromised their professional duties. This case underscores the need for strict adherence to auditing standards to safeguard public interest effectively.