 "Coffee Day Enterprises, CCD")
The National Financial Reporting Authority (NFRA) has imposed a ban as well as penalties totalling Rs 1.25 crore on five entities, including four auditors, for lapses in auditing of Coffee Day Global Ltd and MACEL during 2018-19 fiscal.
Coffee Day Global Ltd (CDGL) and Mysore Amalgamated Coffee Estate Ltd (MACEL) are subsidiaries of listed-entity Coffee Day Enterprises Ltd (CDEL).
Late V G Siddhartha and his family members controlled and owned CDEL.
The case pertains to diversion of funds worth Rs 3,535 crore from seven subsidiary companies of CDEL to MACEL.
After markets regulator Sebi shared its investigation report in April 2022, NFRA started probing the professional conduct of the statutory auditors of CDGL.
Separately, NFRA has imposed a fine of Rs 5 lakh and slapped a five-year ban on Lavitha Shetty, who was the statutory auditor for MACEL during 2018-19 period.
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In connection with CDGL, the audit regulator has slapped a fine of Rs 1 crore on audit firm ASRMP & Co, Rs 10 lakh on A S Sundaresha and Rs 5 lakh each on Madhusudan U A and Pranaav G Ambekar.
While ASRMP & Co has been barred from taking up auditing work for two years, the four individuals have been banned for five years each.
All of them have been restrained from undertaking any audit in respect of financial statements or internal audit of any company or body corporate during the ban period, according to an order.
The total material and pervasive misstatements amounted to Rs 7,514.10 crore and Rs 11,393.69 crore, respectively, in the financial statements of CDGL and MACEL, as per two separate NFRA orders.
As per the order against CDGL, the company's auditors failed to exercise professional judgement and skepticism during audit of the transactions of Rs 6,958.91 crore entered fraudulently with MACEL, which were also not disclosed in the related party disclosures in their entirety.
It is established that the auditors failed to question and report the diversion of funds by CDGL by way of a huge amount of advance to MACEL without any justification or operating necessity. It was also done without the board approval and without any agreement, the regulator said.
Further, NFRA said the auditors made an attempt to deceive it by adding more documents to as well as altering the documents in their audit file which amounted to tampering with the audit file.
They falsely reported the financial statements of CDGL and MACEL for the FY 2018-19, and did not give a true and fair view of the financial position of both the companies.
Lavitha Shetty also failed to exercise professional skepticism during audit of related party balances involving an accounting fraud of Rs 2,363.34 crore, which resulted in understatement of related party loan balances by Rs 1,713.74 crore in the financial statements of MACEL, another order said.
She also failed to evaluate the recoverability of loans of Rs 3,235.16 crore made to late V G Siddhartha, then Chairman and MD of CDEL, his wife Malavika Hegde and entities controlled by them.
As per the order, Lavitha Shetty also failed to perform sufficient and appropriate audit procedure during audit of cash flow statement, which had material misstatement of Rs 909.99 crore.
According to NFRA, by failing to disclose material transactions and mistatements in the financial statements of CDGL and MACEL, the auditors failed to exercise due diligence while performing their duties.
They were also grossly negligent in the conduct of their professional duties and therefore, needs to be penalised, it added.
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