NFRA fines Zee Entertainment auditors for failure in adhering to audit norms

The National Financial Reporting Authority (NFRA) has imposed a penalty of ₹2 crore on Deloitte for failing to adhere to auditing standards in its role as the statutory auditor of Zee Entertainment Enterprises Ltd (Zee). The fine pertains to the lapses in auditing for 2018-19 and 2019-20 financial years.

The regulator had suo motu examined the audit file for the statutory audit of Zee for the given periods to assess whether the auditor committed any professional misconduct. After the examination, the regulator found that Deloitte had been grossly negligent in its audit of Zee’s financial statements, citing multiple violations of the Companies Act concerning related party transactions.

The firm was also accused of not exercising professional scepticism, due diligence, and failing to challenge management’s assertions. Deloitte also failed to adequately evaluate reports of suspected fraud.

The regulator’s order highlighted the unauthorised guarantees and securities, premature closure of fixed deposits by the bank, and the unauthorised use of Zee funds to settle loans of promoter group companies, all of which were done with the knowledge of the group’s Chairman and Zee management.
In addition to the penalty on Deloitte, individual auditors involved in the case have also been penalised. CA AB Jani, a key auditor in the case, was slapped with a fine of ₹10 lakh and has been debarred for five years from being appointed as an auditor or internal auditor. CA Rakesh Sharma, another auditor involved in the case, was fined ₹5 lakh and barred for three years from such roles.

NFRA said that both individuals have been debarred from “being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate,” for varying periods.

Jani was the Engagement Partner (EP), and Sharma was the Engagement Quality Control Review (EQCR) Partner for the audit of the company for 2018-19 and 2019- 20.

A Deloitte spokesperson said it has received the NFRA order against the firm and two retired partners.

“We are currently reviewing the order to determine our next course of action,” the spokesperson said in a statement.

(With inputs from agencies)