TDL Scam: NFRA Debars CA Firm and Chartered Accountant for Audit Lapses [Read Order]

National Financial Reporting Authority (NFRA) debarred one CA firm and a Chartered Accountant for professional misconduct committing lapses in the audit.

The accountants were the statutory auditors of Tanglin Developments Limited (TDL), a subsidiary company of Coffee Day Enterprises Limited (CDEL).

The Financial Reporting Authority, based on the investigation and proceedings under Section 132 (4) of the Companies Act, 2013, imposed monetary penalties and sanctions.

The CA firm M/s Sundaresha & Associates was imposed with a monetary penalty of Rs. 1 crore and the engagement partner CA C. Ramesh was imposed with a penalty of 5 lakhs.

Additionally, both were debarred for the period of 2 years and 5 years respectively 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.

The investigations of NFRA revealed that TDL’s Auditors for the FY 2018-19, had failed

to meet the relevant requirements of the Standards on Auditing (SA) in a number of significant aspects and demonstrated a serious lack of competence.

NFRA charged the auditors with many professional misconducts including failure to disclose a material fact known to them, failure to exercise due diligence and being grossly negligent in the conduct of professional duties, failure to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion… etc.

The authority noted that by having audit and non-audit connections with numerous Coffee Day Group companies, they failed to consider their possible conflict of interest and failed to retain their independence from TDL.

The major lapses observed by the NFRA are:

1. Acceptance of audit engagement disregarding Independence requirements
2. Tampering of Audit File and related lapses – SA 230, Audit Documentation
3. Failure to understand the audited entity, to perform risk assessment procedure to identify, assess & respond to Risk of Material Misstatement due to fraud, and to prepare Audit Plan
4. Lapses in audit of fraudulent loan transactions with MACEL (Rs 2614.35 crores), fraudulent understatement of loans (Rs 474 crores) and evergreening of loans through the structured circulation of fund
5. Lapses in audit of fraudulent recognition of Interest income of Rs 75.58 crores
6. Lapses in audit of fraudulent diversion of funds of Rs 507.05 crores to Giri Vidhyuth (India) Limited
7. Lapses in audit of fraudulent loan transactions of Rs 1743.42 crores with Tanglin Retail Reality Developments Pvt Ltd (TRRDPL)
8. Lapses in audit of suspected fraudulent diversion of Rs 415 crores given as land advances to related parties

Apart from these audit lapses, the auditors also committed non-compliance with many other rules and regulations including Non-compliance with SA 500, Audit Evidence & SA 505, External Confirmations, Non-compliance with SA 550, Related Parties, Non-compliance with SA 700, Forming an Opinion and Reporting on Financial Statements.. Etc.

From the non-compliances of the regulations, it is clear that the auditors strictly failed to meet the requirements of the Standards of Auditing.

Moreover, the auditors also failed to exercise Professional Judgement & scepticism and performed risk assessment procedures to identify, assess and respond to the Risk of Material Misstatements due to fraud.  They also falsely reported that TDL had effective Internal Financial Control over Financial Reporting despite the complete absence of the same.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates