The auditor of the Hyderabad based software outsourcer Prithvi Information Solutions (PISL) have refused to sign the financial accounts of the company for 2010-11.

According to a copy of the minutes of the annual general meeting (AGM) seen by ET and also filed by the company with BSE, VK Asthana & Co, the auditors have disowned the audit report and financials circulated by the management, making it clear that they did not sign the audit report and financials.

This comes just about a week before the company's meeting convened to obtain shareholders' approval for the 2010-11 accounts. The auditors said they did not sign the audit report and financials since the board meeting held for the purpose "was inconclusive and the audit has not been completed."

The PISL managing director V Satish Kumar admitted that the audit report and financials were only "initialed by the audit firm and not signed. But it is as good as signed. From a legal point of view, I don't have anything to worry about."

In an interview with ET on Tuesday, he said it is a normal practice for the auditors to go back to their offices after the audit committee meetings, sign the audit report and financials and send them across to the company in a couple of days after the audit committee meetings. "In our case, we consider it deemed signed once the auditors gave the initialed draft audit report."

Raising objections to the management's decision to go ahead with circulating the audit report and financials without its signature, the audit firm has submitted its resignation letter to the PISL management.

Interestingly, VK Asthana is the fifth auditing firm the company had in the last three years after Patwari & Co, Ernst & Young, PriceWaterhouseCoopers and Walker Chandiok.

Prithvi said it changed Ernst & Young in March 2009 because PriceWaterhouseCoopers had more experience in auditing IT firms. PwC dropped out in 2009 following the multi-crore accounting fraud at Satyam Computer Services. Walker Chandiok, the third auditor appointed soon after in July 2009, resigned without completing the audit in January 2010. According to Prithvi, Walker Chandiok was not able to audit its books in the time available and so the IT firm had hired VK Asthana & Co soon after.

Despite VK Asthana disowning the audit report and financials for 2010-11 and resigning while raising serious objections, the management went ahead with conducting the AGM and also adopted the accounts.

Satish Kumar said the auditor has initially agreed that the company can hold audit and board meetings for finalisation of accounts and also for issuing notices to shareholders for the AGM, but disowned his earlier stand, commitments and assurances.

Further, he said the company has obtained legal advice on the matter from the former chairman of the Company Law Board, S Balasubrahmanian, and senior advocate Challa Kodandaram. Both the legal experts have advised the management to go ahead with placing the unsigned accounts before the shareholders for adoption.

Satish Kumar said the auditors, while resigning, have "made several infructuous, irrelevant, false, baseless and unwarranted statements/allegations," on the management, but he refused to disclose the exact allegations levelled by the audit firm.

Further, he said, "The company was completely perplexed that the auditor having consented to all the decisions of the board like fixing the date of AGM, sending notices for the AGM and also intimating the stock exchanges, etc, and having assured that he would furnish to the company his final signed audit report within a few days, should have abdicated his entire role and responsibility, and thus creating an unusual situation for the company."

ET, which has perused a copy of the AGM minutes that describe the events and objections of the auditors, however, could not reach the audit firm for its comments for this story.

When contacted, the president of the Institute of Chartered Accountants of India (ICAI), G Ramaswamy, said such a practice of adopting the unsigned accounts "is not legally tenable."

On the cheating cases against the company, Satish Kumar said the company has settled the case with HSBC, and the AP High Court on Monday dismissed the winding-up petition filed by Deutsche Bank. With regards to a case filed by Sojitz Corp claiming Rs 290 crore, the company is negotiating a settlement for Rs 180 crore, he said.

On Tuesday, the PISL stock gained 8.22% at Rs 11.85 on BSE, whose benchmark Sensex lost 96 points to close at 15,873 points. (Economic Times)