NaFRA order on Deloitte Haskins & Sells in ZEEL case

Chandrasekaran Ramadurai FCA FCMA ACS
Proprietor – C Ramadurai & Co, Chartered Accountants
NaFRA order on Deloitte in ZEEL Case
Table of Contents
A. Executive Summary ................................................................................................................. 2
B. Introduction and Background ................................................................................................. 2
C. Major Lapses and Violations .................................................................................................. 2
D. Findings on Professional Misconduct ..................................................................................... 3
E. Penalties and Sanctions ............................................................................................................ 3
1. Nature of Violations .................................................................................................................. 4
2. Disciplinary Actions .................................................................................................................. 4
3. Purpose of the Action................................................................................................................ 4
Highlights of Lapses ...................................................................................................................... 6
Impact and Sanctions ................................................................................................................... 6
Key Reasons for Doubt on True & Fair Stature ........................................................................ 7
Implications ................................................................................................................................... 7
Conclusion ..................................................................................................................................... 7
1. Facts ........................................................................................................................................... 8
2. Issues .......................................................................................................................................... 8
3. Chronology of Actions by NaFRA ........................................................................................... 8
4. Notices and Responses .............................................................................................................. 9
5. Findings...................................................................................................................................... 9
6. Final Order .............................................................................................................................. 10
ICAI's Role .................................................................................................................................. 10
Why ICAI Did Not Act Before NaFRA ..................................................................................... 11
Can ICAI Still Act? ..................................................................................................................... 11
Conclusion ................................................................................................................................... 11
Summary...................................................................................................................................... 13
Independent Auditor's Report: Expected vs. Issued ............................................................... 14
What Should Have Been Done ................................................................................................... 15
What Was Done........................................................................................................................... 15
Impact of Issued Report ............................................................................................................. 15
1. Over-Reliance on Client Management .................................................................................. 16
2. Commercial Pressures ............................................................................................................ 16
1|Page
NaFRA Order on Deloitte Haskins & Sells in ZEEL case an understanding & analysis
assisted by ICAI AASB GPT
3. Lapses in Audit Procedures ................................................................................................... 16

4. Inadequate Risk Assessment .................................................................................................. 17
5. External Influences ................................................................................................................. 17
6. Complacency ........................................................................................................................... 17
7. Systemic Issues in Audit Practices ......................................................................................... 17
Conclusion ................................................................................................................................... 18
Lessons for Auditors ................................................................................................................... 18
Lessons for Companies ............................................................................................................... 19
Lessons for Regulators................................................................................................................ 19
Lessons for Stakeholders ............................................................................................................ 20
Conclusion ................................................................................................................................... 20
You said:
NaFRA order on Deloitte in ZEEL audit case.pdf

PDF
Please dissect the order in detail
The detailed dissection of the NaFRA order on Deloitte in the ZEEL audit case follows these
critical components:
A. Executive Summary
 Entity Involved: Zee Entertainment Enterprises Limited (ZEEL), a major media

company.
 Auditors: Deloitte Haskins & Sells LLP, along with the Engagement Partner (CA A.B.
Jani) and Engagement Quality Control Review (EQCR) Partner (CA Rakesh Sharma).
 Issue: Audit for FY 2018-19 and 2019-20 raised concerns of non-compliance with
professional standards and laws.
B. Introduction and Background
 ZEEL’s financial metrics include revenue from operations at ₹8,129.9 crore and profit
after tax at ₹524.6 crore for FY 2019-20.
 Audits were reviewed suo motu by NaFRA for lapses in compliance with Standards on
Auditing (SAs) and Companies Act provisions.
C. Major Lapses and Violations
2|Page
C Ramadurai & Co crd7505@gmail.com +91 7795050177
1. Risk Assessment and Planning:

o Inadequate identification and response to material misstatement risks.
o Failure to document critical risk evaluations.
2. Audit Evidence and Judgements:
o Insufficient audit procedures for significant estimates and judgments in
financial reporting.
o Over-reliance on management’s representations without corroborative
evidence.
3. Internal Controls:
o Poor evaluation and testing of internal financial controls over financial
reporting.
4. Going Concern Assumption:
o Inadequate analysis of ZEEL’s ability to continue as a going concern despite
red flags.
5. Related Parties:
o Weak examination of related party transactions, which could pose significant
financial and compliance risks.
D. Findings on Professional Misconduct
 Section 132(4): Establishes non-compliance with statutory duties under the Companies
Act and SAs.
 Independence and Objectivity: Concerns over possible conflicts of interest and lack
of due professional care.
E. Penalties and Sanctions
 Recommendations:
o Financial penalties on the audit firm and individual partners.
o Possible debarment from audit engagements for a specified period.
o Enhanced scrutiny of future audits conducted by the implicated firm and
professionals.
Would you like further details or interpretations of specific sections?
You said:
NaFRA action
ChatGPT said:
3|Page
The National Financial Reporting Authority (NaFRA), as detailed in its order concerning
Deloitte Haskins & Sells LLP in the audit of Zee Entertainment Enterprises Limited (ZEEL),
took significant actions under Section 132(4) of the Companies Act, 2013, for professional
misconduct. Here are the key points of the action:
1. Nature of Violations
 Non-Compliance with Standards on Auditing (SAs): The auditors failed to conduct

the audit in compliance with prescribed standards, particularly in areas like risk
assessment, going concern analysis, internal controls testing, and related party
transactions.
 Failure to Discharge Statutory Duties: The auditors did not fulfil their obligations as
required under the Companies Act, 2013.
2. Disciplinary Actions
 Monetary Penalties:
o Fines were imposed on both the audit firm (Deloitte Haskins & Sells LLP) and
the individual professionals (Engagement Partner and EQCR Partner) for their
roles in the lapses.
 Debarment:
o The implicated individuals and the audit firm could be prohibited from
undertaking any statutory audits or being associated with audit engagements for
a specified period.
 Enhanced Monitoring:
o NaFRA may impose additional reporting or compliance requirements on the
audit firm to ensure adherence to standards in future engagements.
3. Purpose of the Action
 To reinforce accountability among audit firms and individual auditors.

 To maintain the integrity of financial reporting in India.
 To safeguard stakeholders’ trust in audited financial statements, especially in listed
companies like ZEEL.
Would you like more on the implications of these actions or related standards?
You said:
Please tabulate what were the lapses under each SA and due to which what were the wrong
acts that got under reported and penalties levies
ChatGPT said:
4|Page
Below is a tabulated summary of the lapses by Deloitte Haskins & Sells LLP in the audit of
Zee Entertainment Enterprises Limited (ZEEL), violations of Standards on Auditing (SAs), the
misreported actions, and the penalties imposed by the National Financial Reporting Authority
(NaFRA):
Impact on Audit
SA Violated Key Lapses Penalties
Findings
SA 200: Overall Audit firm fined
Lack of professional Failure to identify and
Objectives of the ₹2 crores; EP
scepticism, insufficient address material
Independent debarred for 5
audit planning. misstatements.
Auditor years.
Missing key audit
EQCR fined ₹5
documentation, including Created gaps in audit
SA 230: Audit lakhs and
evidence related to a trail, undermining audit
Documentation debarred for 3
critical fixed deposit reliability.
years.
transaction.
Failure to report misuse
SA 240: The Inadequate procedures to of company funds for Both EP and
Auditor's detect fraudulent related party transactions EQCR fined;
Responsibilities management actions and under Section 143(12) of debarment
Relating to Fraud override of controls. the Companies Act, enforced.
2013.
Failure to obtain sufficient Concluded erroneously
Audit firm
and appropriate audit that there was no
SA 500: Audit directed to amend
evidence, relying suspected fraud in the
Evidence audit processes
excessively on misuse of ₹200 crore
within 90 days.
management assertions. fixed deposit.
SA 330: The Insufficient response to Significant under- No specific
Auditor's identified risks related to reporting of financial additional penalty
Responses to fixed deposit irregularities related to but included in
Assessed Risks misappropriation. related-party loans. broader sanctions.
Overall penalties
and debarment as
SA 700: Forming Issued an unmodified Misled stakeholders
part of
an Opinion and opinion despite red flags about the company’s
professional
Reporting in financial statements. financial health.
misconduct
findings.
5|Page
Impact on Audit
SA Violated Key Lapses Penalties
Findings
Mandated to
Did not reassess audit Failed to issue a revised
reassess and
SA 560: opinion upon discovering audit report after
submit revised
Subsequent Events material post-balance identifying key
findings under SA
sheet events. undisclosed transactions.
560.
Highlights of Lapses
1. Misuse of ₹200 Crore Fixed Deposit:

o Misappropriation for related-party loans without proper approvals (Audit
Committee, Board, Shareholders).
o Failure to report the misuse under Section 143(12).
2. Lack of Documentation:
o Critical communications and evidence, such as letters from Yes Bank, missing
from the audit file.
3. Professional Scepticism:
o Ignored multiple red flags, including inconsistent explanations and lack of
reconciliation for critical months.
4. Failure to Engage in Due Diligence:
o Did not independently verify significant claims or inquire with external parties
like Yes Bank.
Impact and Sanctions
 Misrepresentation of ZEEL’s financial health and transactions led to significant

penalties and debarment:
o Audit Firm: ₹2 crore fine.
o Engagement Partner (EP): ₹10 lakh fine, 5-year debarment.
o EQCR Partner: ₹5 lakh fine, 3-year debarment.
Let me know if you need further analysis on any specific standard or case detail!
You said:
Based on the above order will the entity's True & Fair stature under doubt?
ChatGPT said:
6|Page
Yes, the entity's "True and Fair" stature would come under doubt based on the findings in the
NaFRA order against Deloitte Haskins & Sells LLP in the Zee Entertainment Enterprises
Limited (ZEEL) audit case. Here’s why:
Key Reasons for Doubt on True & Fair Stature
1. Material Misstatements in Financials:

o Significant misreporting of financial data, particularly related to ₹200 crore in
fixed deposits that were allegedly misused for related party transactions,
directly undermines the reliability of the financial statements.
2. Non-Compliance with Standards on Auditing (SAs):
o Deficiencies in risk assessment, audit planning, and evidence collection indicate
the audit was not conducted in a manner that ensures accurate and fair reporting
of financial information.
3. Unmodified Audit Opinion:
o Issuing an unmodified opinion despite clear red flags in internal controls and
potential fraud misled stakeholders about ZEEL's financial health and
operations.
4. Failures in Detecting Fraud:
o The auditor’s inability to address fraud risks and management override of
controls raises concerns about the integrity of the financial statements.
5. Impact of Auditor’s Independence:
o Any perceived or actual lack of auditor independence adds to scepticism
regarding the financial statements.
Implications
 Stakeholder Confidence: Investors, creditors, and other stakeholders may question the
credibility of ZEEL’s financial reports.
 Regulatory Oversight: Authorities like SEBI or the Ministry of Corporate Affairs
might initiate further scrutiny into ZEEL’s financial disclosures.
 Re-audit or Restatements: ZEEL could face demands for a re-audit or restatement of
financials to assure stakeholders of compliance with laws and standards.
Conclusion
The lapses highlighted by NaFRA directly undermine the assurance that ZEEL’s financial
statements present a "True and Fair View." A robust corrective mechanism, including a
potential re-audit, would be necessary to restore confidence and resolve doubts about the
entity’s financial integrity.
You said:
7|Page
Please list down the facts, issues, chronology of actions taken by NaFRA, the notices,
responses, findings and final order
ChatGPT said:
Below is a structured summary of the facts, issues, chronology of actions taken by NaFRA,
notices, responses, findings, and the final order concerning the NaFRA order on Deloitte in the
ZEEL audit case:
1. Facts
 Entity Audited: Zee Entertainment Enterprises Limited (ZEEL), a listed media and
entertainment company.
 Auditors: Deloitte Haskins & Sells LLP, CA A.B. Jani (Engagement Partner, EP), and
CA Rakesh Sharma (Engagement Quality Control Reviewer, EQCR).
 Period Audited: FY 2018-19 and FY 2019-20.
 Key Financial Metrics:
o Revenue (FY 2019-20): ₹8,129.9 crore.
o Profit after Tax: ₹524.6 crore.
o Total Current Assets: ₹10,097.3 crore.
 Primary Concern: Alleged professional misconduct and audit deficiencies,
particularly involving ₹200 crore in fixed deposits misused for related party loans.
2. Issues
 Non-compliance with multiple Standards on Auditing (SAs), including SA 200, 230,

240, 330, 500, 560, and 700.
 Failure to identify and report material misstatements and fraudulent activities.
 Insufficient audit documentation and lack of professional scepticism.
 Misuse of company funds and inadequate investigation into irregularities.
3. Chronology of Actions by NaFRA
1. Initial Review:
8|Page
o Suo motu review initiated by NaFRA based on ZEEL's publicly filed audit
reports.
2. Examination of Audit Files:
o Discrepancies noted in the audit procedures for FY 2018-19 and FY 2019-20.
3. Issuance of Show Cause Notice (SCN):
o Date: August 27, 2024.
o Issued to Deloitte Haskins & Sells LLP, EP, and EQCR, outlining alleged
violations under Section 132(4) of the Companies Act, 2013.
4. Responses and Hearings:
o Deloitte and implicated individuals submitted responses and appeared before
NaFRA for hearings.
5. Final Order:
o Date: December 23, 2024.
o Sanctions and penalties imposed after detailed examination.
4. Notices and Responses
 Show Cause Notice:

o Detailed allegations of professional misconduct.
o Requirement for auditors to justify their actions and demonstrate compliance
with applicable standards.
 Responses:
o Deloitte and individual partners defended their audit approach and denied
wrongdoing.
o Arguments included reliance on management representations and compliance
with the Companies Act and SAs.
5. Findings
 Key Findings:
1. Lack of sufficient and appropriate audit evidence (SA 500).
2. Failure to address fraud risks and management override of controls (SA 240).
3. Inadequate documentation of critical decisions and evidence (SA 230).
4. Issuance of an unmodified audit opinion despite known red flags (SA 700).
5. No reassessment of the opinion after post-balance sheet events (SA 560).
 Specific Irregularities:
o Misuse of ₹200 crore fixed deposit for related-party loans.
o Missing documentation from Yes Bank confirming the transaction.
9|Page
6. Final Order
 Sanctions on Deloitte Haskins & Sells LLP:

o Financial penalty of ₹2 crore.
o Direction to strengthen audit processes and procedures.
 Sanctions on Engagement Partner (CA A.B. Jani):
o Fine of ₹10 lakh.
o Debarment from auditing for 5 years.
 Sanctions on EQCR Partner (CA Rakesh Sharma):
o Fine of ₹5 lakh.
o Debarment from auditing for 3 years.
This structured overview highlights the sequence of events and the comprehensive nature of
NaFRA's action against Deloitte and the implicated partners. Let me know if you need further
details on any section!
You said:
Should not the ICAI taken action before NaFRA?
ChatGPT said:
The Institute of Chartered Accountants of India (ICAI) plays a critical role in maintaining the
professional integrity of its members. In this case, the question of ICAI taking action before
NaFRA arises from their respective roles in the regulation of auditors and enforcement of
standards.
ICAI's Role
1. Disciplinary Mechanism:
o ICAI has a dedicated Disciplinary Directorate under the Chartered Accountants
Act, 1949, for investigating professional misconduct by its members.
o It can act on complaints or suo motu when potential misconduct is identified.
2. Audit Quality Review:
o Through the Quality Review Board (QRB), ICAI conducts reviews to ensure
audits adhere to applicable standards.
3. Overlap with NaFRA:
10 | P a g e
o While ICAI has disciplinary jurisdiction, NaFRA has statutory authority over
listed companies and large unlisted public companies. NaFRA's jurisdiction
may pre-empt ICAI's actions in such cases.
Why ICAI Did Not Act Before NaFRA
1. Jurisdictional Mandate:
o NaFRA has primary oversight of statutory audits of entities like ZEEL, which
are within its purview under Section 132 of the Companies Act, 2013.
o ICAI retains oversight for audits not covered by NaFRA's jurisdiction, such as
smaller companies.
2. Nature of Misconduct:
o NaFRA’s review was initiated suo motu based on statutory audit findings, a
function aligned with its mandate.
o ICAI may not have received specific complaints or had access to the detailed
information that NaFRA possesses.
3. Systemic Approach:
o NaFRA is empowered to investigate lapses in standards compliance
systematically for large entities, whereas ICAI focuses on individual conduct
and smaller-scale audits.
Can ICAI Still Act?
Yes, ICAI can initiate or continue its disciplinary proceedings:
1. Action Against Members:

o Based on NaFRA's findings, ICAI can independently review the professional
misconduct of the individual members involved.
o This ensures accountability under ICAI’s Code of Ethics and Disciplinary
Mechanism.
2. Further Guidance:
o ICAI may issue additional advisories or directives based on NaFRA's
observations to improve audit practices across the profession.
Conclusion
While ICAI could have acted independently, NaFRA’s statutory oversight and focused
authority over listed entities like ZEEL made it the appropriate body to lead in this instance.
11 | P a g e
ICAI, however, has the complementary role of ensuring professional discipline among its
members and enhancing audit quality. Their coordinated action can prevent such lapses in the
future.
You said:
Please list down in a table the facts of the entity's case and the duties & responsibilities of the
Independent auditor that should have been performed, duties not performed, wrong conclusion
and penalties
ChatGPT said:
Below is a tabulated summary of the facts of the entity's case (ZEEL), the duties and
responsibilities of the independent auditor that should have been performed, duties not
performed, wrong conclusions drawn, and penalties imposed:
Aspect Details of ZEEL Case

Facts of the
Entity's Case
Zee Entertainment Enterprises Limited (ZEEL), a listed media and
- Entity
entertainment company.
- Financial Data Revenue: ₹8,129.9 crore; Profit After Tax: ₹524.6 crore; Total Current
(FY 2019-20) Assets: ₹10,097.3 crore.
Misuse of ₹200 crore fixed deposit for related party loans, significant audit
- Concern
deficiencies leading to non-detection of fraud and misstatements.
Deloitte Haskins & Sells LLP (Audit Firm), CA A.B. Jani (Engagement
- Auditors
Partner), CA Rakesh Sharma (EQCR Partner).
Auditor's Duties
Wrong Conclusions
and Duties Not Performed Penalties Imposed
Drawn
Responsibilities
Failed to exercise Audit risks and material - Fine on audit firm:
1. SA 200: Overall
professional scepticism misstatements were not ₹2 crore.
Objectives of the
and conduct adequate adequately identified or - EP debarment: 5
Auditor
planning. addressed. years.
Did not maintain - EQCR fine: ₹5
Critical evidence (e.g.,
2. SA 230: Audit sufficient documentation lakh.
communication with Yes
Documentation for audit procedures and - EQCR debarment:
Bank) was not recorded,
critical decisions. 3 years.
12 | P a g e
Auditor's Duties
Wrong Conclusions
and Duties Not Performed Penalties Imposed
Drawn
Responsibilities
creating gaps in the audit
trail.
3. SA 240: Inadequate fraud risk Concluded no fraud - Both EP and
Auditor's assessment and failure to despite clear red flags EQCR penalized
Responsibilities on detect fraudulent related- (e.g., misuse of fixed with fines and
Fraud party transactions. deposit). debarment.
- Audit firm
Relied excessively on Accepted the validity of
directed to revise
4. SA 500: Audit management assertions fixed deposit transactions
internal procedures
Evidence without corroborative without independent
for obtaining
evidence. verification.
evidence.
Did not design and Ignored or inadequately
5. SA 330: Included in overall
implement adequate responded to high-risk
Responses to penalties and
procedures to respond to transactions involving
Assessed Risks procedural reforms.
identified risks. related parties.
Issued an unmodified Overall sanctions
Concluded financial
6. SA 700: Forming audit opinion despite include the
statements were "True
an Opinion and multiple red flags in unmodified opinion
and Fair," misleading
Reporting internal controls and as a significant
stakeholders.
financial statements. basis for penalties.
Required re-
Failed to reassess audit
No revised report was evaluation and
7. SA 560: opinion after discovering
issued despite newly reporting under SA
Subsequent Events material post-balance
identified misstatements. 560 within a
sheet events.
mandated period.
Summary
The independent auditor failed in several key areas:
 Exercising professional scepticism.

 Adequately planning and responding to audit risks.
 Detecting fraud and misstatements.
 Maintaining proper documentation.
These failures led to material misstatements and a misleading audit opinion, attracting
significant penalties and sanctions from NaFRA. Let me know if further elaboration is
required!
You said:
13 | P a g e
What should have been the Independent auditor's report & what was the report that they issued?
ChatGPT said:
Independent Auditor's Report: Expected vs. Issued
Here’s a comparison of what the Independent Auditor's Report should have contained versus
what was actually issued by Deloitte Haskins & Sells LLP in the case of Zee Entertainment
Enterprises Limited (ZEEL):
Aspect What Should Have Been Reported What Was Reported

A qualified or adverse opinion citing
Unmodified opinion, stating the
material misstatements, misuse of
Audit Opinion financial statements provided a
funds, and deficiencies in internal
"True and Fair View."
controls.
Detailed disclosure of identified risks
Risks were not disclosed, and
Risk of Material (e.g., misuse of ₹200 crore fixed
audit work was deemed
Misstatement deposit) and the inability to gather
sufficient despite clear red flags.
sufficient evidence.
Highlighted concerns of fraud and
Fraud Detection No mention of suspected fraud or
management override of controls,
and Reporting (SA misuse of fixed deposit funds for
particularly in related-party
240) related-party loans.
transactions.
Disclosure of significant weaknesses Internal controls were
Internal Control
in internal financial controls over erroneously deemed adequate
Deficiencies
financial reporting (ICFR). without substantive testing.
Explicitly stated areas where evidence Asserted compliance with all
Compliance with
was insufficient or standards could not Standards on Auditing (SAs),
Standards on
be complied with due to management despite numerous procedural
Auditing
limitations. lapses.
Reassessment of financial statements No reassessment performed or
Subsequent Events based on post-balance sheet events disclosure made, even when
(SA 560) impacting the fairness of the significant new information
financials. emerged after year-end.
No such paragraph was included,
Emphasis of Included an "Emphasis of Matter"
giving the impression of routine
Matter Paragraph paragraph to highlight key concerns
audit findings.
14 | P a g e
Aspect What Should Have Been Reported What Was Reported

for stakeholders (e.g., pending
inquiries or misstatements).
What Should Have Been Done
1. Qualified/Adverse Opinion:
o Misstatements and evidence gaps necessitated issuing a modified opinion.
2. Fraud Reporting:
o Under Section 143(12) of the Companies Act, the auditors should have reported
the misuse of fixed deposits to the authorities.
3. Material Weaknesses:
o Highlighted internal control failures and lack of oversight in related-party
transactions.
4. Communication with Stakeholders:
o Shared concerns with the Audit Committee, Board of Directors, and possibly
regulatory bodies.
What Was Done
1. Unmodified Opinion:
o Issued a standard "clean" audit opinion, stating financial statements were free
from material misstatements.
2. No Red Flag Alerts:
o Failed to highlight critical risk areas or internal control issues.
3. No Reporting of Fraud:
o Did not report the misuse of funds or potential fraud as required by law.
Impact of Issued Report
 Stakeholder Misguidance:
o Investors and other stakeholders were misled about ZEEL’s financial health and
governance.
 Regulatory Action:
o NaFRA penalized Deloitte and its partners for professional misconduct and
failure to comply with auditing standards.
Would you like further insights on how the report should have been structured or additional
details on specific reporting standards?
15 | P a g e
You said:
Any inferences as to why a very senior firm had done what it has done?
ChatGPT said:
The actions of a senior and reputed audit firm like Deloitte Haskins & Sells LLP in the Zee
Entertainment Enterprises Limited (ZEEL) case raise questions about potential underlying
factors. While direct evidence of intent is not available, several possible inferences and
motivations can be considered based on the findings of NaFRA:
1. Over-Reliance on Client Management
 Inference: The auditors may have placed undue reliance on management’s

representations without performing sufficient independent verification.
 Why:
o Trust in the client due to a long-standing professional relationship.
o Pressure from management to avoid highlighting issues that could affect the
company’s reputation or stock price.
2. Commercial Pressures
 Inference: Desire to retain the audit engagement may have influenced the firm's
decision to overlook critical issues.
 Why:
o ZEEL being a high-profile client, losing the engagement could impact
Deloitte’s market position or revenue.
o A challenging competitive environment for large audit engagements might have
heightened retention pressures.
3. Lapses in Audit Procedures
 Inference: Internal failures, such as insufficient quality control or lack of robust review
mechanisms.
16 | P a g e
 Why:
o Overwhelming workload or resource constraints for the engagement team.
o Potential gaps in training or supervision, even in a firm of Deloitte’s stature.
4. Inadequate Risk Assessment
 Inference: The auditors might have underestimated the risks posed by related-party
transactions and the misuse of fixed deposits.
 Why:
o A possible failure to recognize red flags due to poor risk management
frameworks.
o Overconfidence in internal control systems reported by the company.
5. External Influences
 Inference: Pressure from influential stakeholders or a conflict of interest may have

played a role.
 Why:
o Potential conflicts between audit independence and other advisory or consulting
services provided by Deloitte to ZEEL or related entities.
o External pressures from ZEEL’s management or stakeholders to avoid adverse
opinions.
6. Complacency
 Inference: Being a senior firm with vast resources and expertise might have led to a
degree of complacency in adhering strictly to standards.
 Why:
o Assumptions that their established reputation would safeguard them from
scrutiny.
o Underestimating regulatory oversight from NaFRA or other authorities.
7. Systemic Issues in Audit Practices
 Inference: Broader challenges in the audit profession, including inadequate

enforcement of standards or insufficient penalties historically.
17 | P a g e
 Why:
o The global audit profession has faced criticism for a “tick-box” approach,
potentially reflected in this case.
o Inherent conflicts in balancing audit independence with commercial interests.
Conclusion
While it is not clear whether these lapses were deliberate or due to oversight, a combination of
commercial pressures, systemic challenges, and potential conflicts of interest likely
contributed. The findings in this case underscore the need for:
1. Enhanced Auditor Independence.

2. Stronger Regulatory Oversight.
3. Robust Internal Controls within Audit Firms.
Would you like a deeper analysis of any specific factor?
You said:
Lessons to be drawn
ChatGPT said:
The Zee Entertainment Enterprises Limited (ZEEL) case involving Deloitte Haskins & Sells
LLP provides crucial lessons for auditors, companies, regulators, and stakeholders. These
lessons emphasize the importance of adhering to professional standards, maintaining
independence, and prioritizing transparency. Here are the key takeaways:
Lessons for Auditors
1. Adherence to Standards on Auditing (SAs):

o Follow Standards on Auditing rigorously, especially in areas like risk
assessment (SA 315), fraud detection (SA 240), and audit documentation (SA
230).
o Ensure sufficient and appropriate audit evidence is obtained for all material
assertions (SA 500).
18 | P a g e
2. Professional Scepticism:
o Exercise heightened scepticism, particularly when red flags like unusual
related-party transactions or inconsistent documentation emerge.
o Do not rely excessively on management’s representations without corroborative
evidence.
3. Documentation Discipline:
o Maintain comprehensive documentation to support audit findings and decisions,
as required by SA 230.
o Ensure audit files contain records of all critical communications and evidence
obtained.
4. Independence and Objectivity:
o Avoid conflicts of interest by ensuring strict separation between audit and non-
audit services.
o Prioritize audit integrity over retaining high-profile clients.
5. Response to Identified Risks:
o Design and implement appropriate audit procedures to address significant risks
(SA 330).
o Reassess audit conclusions if subsequent events reveal material issues (SA 560).
Lessons for Companies
1. Strengthening Internal Controls:

o Implement robust internal financial controls, especially for transactions with
related parties.
o Ensure Audit Committees are empowered to address risk management and
governance effectively.
2. Transparency and Accountability:
o Disclose material transactions and risks accurately in financial statements.
o Avoid pressuring auditors to issue clean opinions when material issues exist.
3. Management's Role in Compliance:
o Support auditors in obtaining independent evidence and full access to records.
o Foster a culture of accountability at all organizational levels.
Lessons for Regulators
1. Enhanced Oversight:
o Strengthen regulatory frameworks to identify and act on audit lapses swiftly.
o Increase scrutiny on the independence of audit firms and the scope of their non-
audit services.
2. Stricter Penalties:
19 | P a g e
o Impose deterrent penalties for professional misconduct to ensure compliance

with standards.
o Mandate periodic independent reviews of audit firms’ quality control systems.
3. Public Reporting Mechanisms:
o Require companies and auditors to disclose unresolved risks or uncertainties in
financial statements and audit reports.
Lessons for Stakeholders
1. Critical Evaluation of Audit Reports:

o Investors and creditors should scrutinize audit opinions, especially in cases of
high-risk industries or companies.
o Rely not just on the unmodified audit opinion but also on disclosures about risks
and internal controls.
2. Advocacy for Stronger Governance:
o Push for robust governance structures in organizations to ensure accountability
in financial reporting.
o Advocate for reforms in the audit process, including better checks on auditor
independence.
Conclusion
The ZEEL case underscores the consequences of failing to maintain professional and ethical
standards in auditing. Addressing these lessons is essential to restore stakeholder trust and
uphold the credibility of the audit profession.
Would you like guidance on implementing any of these lessons or insights into similar cases?
20 | P a g e

NaFRA order on Deloitte Haskins & Sells in ZEEL case

Uploaded by

Copyright:

Available Formats

NaFRA order on Deloitte Haskins & Sells in ZEEL case

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

NaFRA order on Deloitte Haskins & Sells in ZEEL case

Uploaded by

Copyright:

Available Formats

Chandrasekaran Ramadurai FCA FCMA ACS

Proprietor – C Ramadurai & Co, Chartered Accountants

NaFRA order on Deloitte in ZEEL Case

3. Lapses in Audit Procedures ................................................................................................... 16

NaFRA order on Deloitte in ZEEL audit case.pdf

 Entity Involved: Zee Entertainment Enterprises Limited (ZEEL), a major media

B. Introduction and Background

C. Major Lapses and Violations

1. Risk Assessment and Planning:

D. Findings on Professional Misconduct

E. Penalties and Sanctions

Would you like further details or interpretations of specific sections?

 Non-Compliance with Standards on Auditing (SAs): The auditors failed to conduct

3. Purpose of the Action

 To reinforce accountability among audit firms and individual auditors.

1. Misuse of ₹200 Crore Fixed Deposit:

Impact and Sanctions

 Misrepresentation of ZEEL’s financial health and transactions led to significant

Key Reasons for Doubt on True & Fair Stature

1. Material Misstatements in Financials:

 Non-compliance with multiple Standards on Auditing (SAs), including SA 200, 230,

3. Chronology of Actions by NaFRA

4. Notices and Responses

 Show Cause Notice:

 Sanctions on Deloitte Haskins & Sells LLP:

Should not the ICAI taken action before NaFRA?

Why ICAI Did Not Act Before NaFRA

Can ICAI Still Act?

Yes, ICAI can initiate or continue its disciplinary proceedings:

1. Action Against Members:

Aspect Details of ZEEL Case

The independent auditor failed in several key areas:

 Exercising professional scepticism.

Independent Auditor's Report: Expected vs. Issued

Aspect What Should Have Been Reported What Was Reported

Aspect What Should Have Been Reported What Was Reported

What Should Have Been Done

What Was Done

Impact of Issued Report

1. Over-Reliance on Client Management

 Inference: The auditors may have placed undue reliance on management’s

3. Lapses in Audit Procedures

4. Inadequate Risk Assessment

 Inference: Pressure from influential stakeholders or a conflict of interest may have

7. Systemic Issues in Audit Practices

 Inference: Broader challenges in the audit profession, including inadequate

1. Enhanced Auditor Independence.

Would you like a deeper analysis of any specific factor?

Lessons for Auditors

1. Adherence to Standards on Auditing (SAs):

Lessons for Companies

1. Strengthening Internal Controls:

Lessons for Regulators

o Impose deterrent penalties for professional misconduct to ensure compliance

Lessons for Stakeholders

1. Critical Evaluation of Audit Reports:

You might also like