Amplifying an Auditor’s Obligation: Analysis of NFRA’s Order

The National Financial Reporting Authority’s (NFRA) order dated 26 December 2024 concerning the audit of Zee Entertainment Enterprises Limited (ZEEL) underscores a significant expansion in the interpretation of “fraud” under the Companies Act, 2013. The controversy stemmed from Yes Bank prematurely appropriating ZEEL’s fixed deposits of ₹200 crore to entities linked with promoters. Though the funds were later restored with interest, NFRA held that the information available with auditor raised red flags that the auditors failed to address adequately. The order also highlights deficiencies such as reliance on limited internal inquiries, neglecting external confirmations and insufficient professional skepticism. It also juxtaposes the broader statutory fraud definition under Section 447 with the narrower auditing standard under SA 240, raising unsettled questions on thresholds like “reason to believe” and quantification of fraud. Ultimately, NFRA’s stance reinforces heightened auditor responsibility, especially regarding related-party transactions and concealed disclosures

INTRODUCTION:

Inquiries by the National Financial Reporting Authority (“NFRA”) into audits have resulted in important orders that clarify NFRA’s view of complex issues that come from the interpretation of the Companies Act, 2013 ("Act") read with the Standards of Audi