Big Penalty On KPMG-Affiliate BSR & Associates: Why Audit Firms Are Concerned (image: AI-Generated)
The National Financial Reporting Authority (NFRA) has levied a penalty of Rs 10 crore on KPMG-affiliate BSR & Associates LLP and debarred two of its auditors for making professional lapses related to the audit of Coffee Day Enterprises in the 2018-19 period.
This was followed by a probe report by the regulatory body SEBI on the diversion of a whopping Rs 3,535 crore of Coffee Day Enterprises LTD (CDEL) from seven subsidiary companies to Mysore Amalgamated Coffee Estate Ltd (MACEL).
A notice was issued to BSR & Associates LLP (auditor), Amit Somani (Engagement Quality Control Reviewer or EQCR) and Aravind Maiya (Engagement Partner or EP) for the year 2018-19 probing the diversion of funds. NFRA suo moto evaluated the professional conduct of CDEL.
As per the order released on Monday, the regulator levied a penalty of Rs 10 crore on BSR& Associates LLP, Rs 50 lakh imposed on Aravind Maiya and Rs 25 lakh lakh on Amit Somani. Additionally, Somani and Maiya have been debarred for 10 years and 5 years in any audit tasks regarding financial statements or any internal audit associated with any corporate body or company.
Also, read| RBI Governor Tops Global Finance Rankings Again With A+ Grade
NFRA found that the auditors were seemingly ignorant and remained negligent in verifying the business rationale of a hefty amount of Rs 2,226 crore of the payment given to MACEL. It was examined in the investigation that the CDEL for the audit of SFS and CFS failed to meet the major requirements of the SA, along with serious issues and lapses.
The SA intends to establish standards to be applied in situations as it is a purpose where an auditor reporting on the FS of an entity, uses another auditor’s work and another auditor should also share major and relevant information with the principal auditor properly talking and coordinating with the auditor.
In India, unlike global standards, the auditors are allowed to rely on other auditor’s work. However, this raises questions about how long or to what extent a principal auditor can be involved in a subsidiary’s audit if there is no fault or suspicion or if the subsidiary auditor follows established standards here the whopping penalty of 10 crore stunned the top firms.
According to the order, the consolidated financial statements had Rs 842.49 as seen as an outstanding amount which has to be collected from the MACEL, but the auditors found it negligible without focusing on the recoverability in terms of the accounting standards.
The auditors also failed to go well with the procedure as they didn’t verify the use of the substantial amount of Rs 1,05,73 loan amount handed over by CDEL in front of the mentioned subsidiary for a loan from financial institutions or banks which is necessarily required under the company.
Also, read| Income-Tax Clearance Certificate Needed…: Centre’s Clarification
