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May 2, 2023

The CA Firm is fined Rs. 1 crore and the Partner is fined Rs. 5 lakh by the NFRA

The CA Firm is fined Rs. 1 crore and the Partner is fined Rs. 5 lakh by the NFRA

The results of NFRA’s investigations, among other things, showed that the TDL’s auditors for the FY 2018–19 had seriously lacked competence and had failed to meet the pertinent standards of the Standards on Auditing (‘SA’ hereinafter). By having audit and non-audit relationships with numerous Coffee Day Group companies and the family members of the promoters, they failed to consider their potential conflict of interest and failed to maintain their independence from TDL. They also made an effort to deceive NFRA by adding more documents to and changing the documents in their Audit File, which amounted to tampering with the Audit File.

Additionally, the auditors failed to use professional judgement and scepticism and to carry out risk assessment procedures to identify, evaluate, and address the risk of material misstatements as a result of fraud with regard to (a) loan transactions totaling Rs. 2614.35 crores with MACEL. (b) Mrs. Vasanthi Hegde, the mother of the then-chairman of CDEL, received a land advance of Rs. 275 crores; (c) another party received a land advance of Rs. 200 crores for lands that included Mrs. Vasanthi Hegde’s property (which was reportedly repaid); and (d) a related party received a land advance of Rs. 140 crores; A loan of Rs. 507.05 crores that was fraudulently given to Giri Vidhyuth (India) Limited, a subsidiary company, as well as loan transactions worth Rs. 1743.42 crores that were fraudulently entered into with Tanglin Retail Reality Developments Private Limited, were all not evaluated. Neither were the understatement of a loan by Rs. 474 crores that was fraudulently given to MACEL nor the evergreening of loans through structured fund transfers among group companies.

Without a contract or other agreement with MACEL, which did not account for this interest expense in its financial statements, the auditors did not carry out enough adequate audit procedures in regard to the recognition of interest revenue of Rs. 75.58 crores from MACEL. As a result, there were a total of Rs 1471.63 crores worth of major and persistent misstatements, however the auditors fraudulently stated that TDL’s financial statements for the FY 2018–19 provided a true and fair assessment. Additionally, they misrepresented the existence of TDL’s internal financial controls over financial reporting, which they knew were nonexistent. The Audit Firm and Engagement Partner were found guilty of professional misconduct based on an investigation and proceedings under section 132(4) of the Companies Act, and NFRA imposed the following monetary penalties and sanctions through this Order with effect from a period of 30 days following its issuance:

i. The payment of a fine to M/s Sundaresha & Associates in the amount of Rs. 1 crore. The appointment of M/s Sundaresha & Associates as an auditor or internal auditor, as well as the performance of any audit relating to financial statements or internal audit of the operations and activities of any company or body corporate, are all prohibited for a period of two years;

ii. Assessment of CA C. Ramesh with a fine of Rs. 5 lakhs. Additionally, CA C. Ramesh is barred for a period of five years from holding any position involving auditing financial statements or internal auditing the operations and activities of any corporation or other legal entity.

A ruling in the TDL case between M/s Sundaresha & Associates and CA C. Ramesh for FY 2018–19 has been made.

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