Coffee Day lapses: NFRA bars auditor for 10 years

NEW DELHI: The National Financial Reporting Authority (NFRA) has barred the engagement partner of the firm that audited Mysore Amalgamated Coffee Estate (MACEL) for the maximum permissible 10 years for professional misconduct.
In an order passed by the regulator for auditors and firms of large and listed companies, NFRA held chartered accountant Lavitha Shetty, proprietor of Lavitha & Associates, guilty, citing multiple failures.
MACEL, which was linked to Cafe Coffee Day founder V G Siddhartha, has been under regulatory lens.
In its order, NFRA said that its investigations have revealed that MACEL’s auditor for the 2019-20 did not meet the relevant audit standards, and failed to exercise “professional judgement and skepticism” during audit of fraudulent borrowings of Rs 4,438 crore from banks and related parties. Of this, Rs 4,177 crore was diverted to the personal accounts of promoters, their relatives, entities controlled by them and other related parties.
“The engagement partner failed to exercise professional skepticism during audit of related party transactions involving an accounting fraud orchestrated by issue of cheques at the end of FY19 without adequate bank balance or bank credit limit, with the ulterior motive to conceal huge amount of related party balances. These cheques were cleared in the subsequent year, that is, FY20 by evergreening of loans through structured circular transactions of funds among Coffee Day Group Companies,” the order noted. The partner of the firm has also been charged with failure to evaluate MACEL’s corporate guarantees.