AUDIT REGULATOR IMPOSES RECORD RS 10 CRORE PENALTY ON KPMG AFFILIATE AND DEBARS AUDITORS
The National Financial Reporting Authority (NFRA) has made a significant move by imposing a penalty of Rs 10 crore on KPMG affiliate M/s BSR & Associates LLP, marking the highest penalty enforced by the regulator in any case. This action comes in response to alleged glaring professional oversights identified during the 2018-19 audit of Coffee Day Enterprises.
NFRA’s order, issued on Monday, follows an investigation report by capital markets regulator Sebi, which revealed the alleged diversion of Rs 3,535 crore from seven subsidiaries of Coffee Day Enterprises to an entity owned by its promoters. As a result of its own assessment of the matter, NFRA has debarred auditors Aravind Maiya and Amit Somani for 10 years and five years, respectively. Additionally, Maiya and Somani are mandated to pay penalties of Rs 50 lakh and Rs 25 lakh, respectively.
Aravind Maiya, as the engagement partner, played a pivotal role in the 2018-19 Coffee Day audit. Amit Somani, on the other hand, served as the engagement quality control reviewer, responsible for reviewing the audit at various stages.
The regulator has highlighted “substantial deficiencies in audit, abdication of responsibility, and the issuance of a false and misleading unmodified audit report.” The order, authored by NFRA chairman Ajay Bhushan Prasad Pandey and its two full-time members, emphasizes the failure of the auditors to report “fraudulent diversion of funds,” despite substantial evidence of the misallocation of public funds to a promoters’ entity unrelated to Coffee Day.
In response to the order, a spokesperson for BSR & Associates conveyed disappointment and stated that the firm is currently evaluating its next steps. The firm affirmed its commitment to upholding the highest standards of professionalism, quality, and integrity.
Moreover, the order underlines the auditors’ failure to question the extension of loans by Coffee Day to a related party in the guise of an advance for purchases, despite the amount being over five times the purchase value. This lack of professional skepticism is viewed as a severe oversight by the regulator.
The verdict against M/s BSR & Associates is the latest in a series of actions by the NFRA aimed at reprimanding auditors for professional lapses. The watchdog has delivered orders debarring and penalising several auditors in connection with various corporate scandals, in a bid to emphasize the importance of adopting high professional standards.
NFRA’s crackdown on errant auditors is a crucial step towards bolstering the country’s audit and accounting ecosystem, serving to curb corporate malpractices and safeguard shareholders’ interests in a rapidly growing economy. The regulator’s annual inspection of major audit firms and efforts to educate audit panels and senior executives of large listed companies regarding their responsibility in presenting accurate corporate financial statements are further indications of its commitment to promoting integrity in corporate governance.
