NFRA imposes Rs 10 million fine on BSR & Associates, bans two partners

New Delhi: Audit regulator the National Financial Reporting Authority (NFRA) on Monday imposed a hefty fine of ₹10 crore, one of the highest fines in the regulator’s history, against BSR & Associates LLP, an independent audit firm that has a contractual relationship with KPMG, for alleged lapses in auditing Coffee Day Companies Ltd or CDEL, the company that manages the CCD coffee chain.

Excluded partners

The audit watchdog also banned two BSR partners, one for 10 years and the other for five years.

“The auditors failed to report a (suspected) fraudulent diversion of funds despite having sufficient evidence that public money was moved to a promoter entity that had no business connection with the publicly traded company,” the NFRA order states.

Reviewing order

The audit firm said it was reviewing the regulatory order. “BSR & Associates is disappointed with this order for the CDEL audit for the year ended March 31, 2019. The firm is currently evaluating next steps and is unable to comment further at this stage. BSR remains committed to the highest standards of professionalism, quality and integrity,” the audit firm said in response to queries emailed by Mint.

Emailed queries to Coffee Day Enterprises on Monday evening seeking comment on the story remained unanswered at the time of publication.

The regulator alleged that the auditors put on “blinders and when asked to explain, sought refuge in the provision of auditing standard 600, relying on the work of the auditors of the subsidiaries, while CDEL’s investments in these subsidiaries amounted to a staggering amount of ₹1,937 crore, which constitutes 89% of the standalone balance sheet.”

Significant audit area

The audit watchdog noted that exposure to promoter entities was a significant and important area of ​​audit. “The auditor did not question the business justification for the listed company granting loans to a related party under the guise of advance for purchases, the amount itself being more than five times the value of the purchases,” the regulatory order said.

The NFRA also imposed a fine of ₹50 lakh in one of the partners and ₹25 lakh on the other hand for alleged material deficiencies in audit, abdication of responsibility and issuance of false and misleading audit report.

The audit review by the regulator follows an investigation report by the Securities and Exchange Board of India (Sebi) into the alleged diversion of funds worth ₹3,535 crore from seven subsidiary companies of Coffee Day Enterprises to Mysore Amalgamated Coffee Estate Ltd, an entity owned and controlled by the promoters of CDEL, a listed company, NFRA said in the order.

There is a contractual agreement between KPMG and BSR to share certain methodology, tools, software and training, but BSR is a very independent audit firm, Mint On January 9, 2023, the NFRA reported that it is making efforts to improve the quality of statutory audits of companies through investigations, inspections, and quality review reports of the audits conducted. Since 2018, the audit watchdog has issued more than 80 orders to exclude offending auditors.