The National Financial Reporting Authority (NFRA) has imposed a ₹2-crore fine on Deloitte Haskins & Sells LLP and penalised two auditors for deficiencies in their audit of Zee Entertainment Enterprises Ltd (Zee) during the 2018-19 and 2019-20 financial years.

The regulator fined A.B. Jani, the engagement partner, ₹10 lakh and barred him from auditing for five years.

Rakesh Sharma, the engagement quality control review partner, was fined ₹5 lakh and received a three-year ban.

Both auditors are prohibited from serving as statutory or internal auditors for any company during their respective debarment periods.

The NFRA’s review of Zee’s statutory audits initiated suo motu found the auditors in violation of the Companies Act and Standards on Auditing (SA).

Its 30-page order, dated December 23, identified serious lapses, including negligence, failure to exercise professional scepticism and inadequate evaluation of suspected fraud.

One key irregularity involved a ₹200-crore fixed deposit pledged by Zee’s chairman in September 2018 as a guarantee for loans to Essel Group company Essel Green Mobility Ltd.

Yes Bank appropriated the deposit in July 2019 to settle dues from seven Essel Group firms.

This transaction lacked approval from Zee’s board or shareholders. The auditors failed to detect and report the unauthorised arrangement, the NFRA said.

The regulator also highlighted additional failures, including the premature closure of the fixed deposit by Yes Bank and the unauthorized use of Zee’s funds to settle promoter group loans.

Despite being aware of these issues, the auditors did not adequately challenge management’s assertions or evaluate the reporting of fraud.

A show-cause notice was issued to Deloitte and the auditors, and their responses were reviewed.

The NFRA concluded that the firm and auditors were guilty of professional misconduct. It stated that the lapses caused a significant breach of trust and failed to protect shareholders’ interests.

The penalties aim to ensure accountability and uphold auditing standards.

The NFRA’s findings underscore the importance of professional scepticism and diligence in addressing complex financial arrangements, particularly those involving significant related-party transactions.

Meanwhile, chartered accountants’ apex body ICAI president Ranjeet Kumar Agarwal on Monday said its disciplinary committee is investigating alleged auditing lapses at edutech firm Byju’s.

ICAI found gross negligence on the part of the auditors of Byju’s and that the matter was referred to the Financial Reporting Review Board (FRRB).