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USL forensic report puts spotlight on statutory auditors

Posted Date : 29-Apr-2015 , 07:56:01 am | Posted By CASANSAAR print Print
A PricewaterhouseCoopers forensic report, which pointed out that UB Group's Vijay Mallya had diverted cash from United Spirits and its subsidiaries to other group companies between 2010 and 2012, has put the spotlight on the role of statutory auditors. 

United Spirits had three statutory auditors over a four-year period: Price Waterhouse for 2010-2011, Walker Chandiok & Co for the next two financial years, and BSR & Co from 2013-2014 onwards. 

Sources say Price Waterhouse, a PwC network firm, quit because the team was not comfortable with the company's accounting practices. After that, Walker Chandiok, a Grant Thornton network firm, was appointed for 2011-2012. 

According to the 2012-2013 annual report, Walker Chandiok did not seek re-appointment after its second year. By then, Diageo had bought Mallya's stake and brought in its own auditor, BSR & Co, a KPMG network firm. 

The BSR auditors, in a heavily qualified report for 2013-14, questioned the accounting of the previous years and the company's governance and internal control practices. 

Six pages of the annual report are taken up by board of directors' responses to observations, qualifications and adverse remarks in the auditor's report. 

The BSR auditors have raised questions about guarantees given to vendors and lenders of Kingfisher Airlines, advances paid to certain parties that further lent to UB Group entities and loans granted to Kingfisher Airlines and their default. 

They questioned the role of certain individuals involved in related-party transactions. "Auditors must be asked to justify their audit quality. Auditor rotation typically brings fresh oversight, thereby enhancing the quality and objectivity of the audit process. 

However, in USL's case, the two changes in auditors yielded no results," said Amit Tandon, managing director of Institutional Investor Advisory Services India Ltd, a corporate governance and proxy advisory firm. 

"A lot of things are not unaccounted but accounted in a way that the third party cannot make an opinion about it," adds one of India's foremost auditing experts. Walker Chandiok said in response, "We do not comment on specific companies or clients." 

Another issue that experts have raised is the role of PwC, the firm that authored the forensic report being quoted by Diageo in the current spat with Mallya. The PwC forensic audit into the company's books last week found "impropriety and violations" regarding transactions of close to Rs 2,000 crore. Subsequently, the USL board asked Mallya to step down as director and chairman, citing loss of confidence. 

Mallya has refused to do so. Price Waterhouse was the auditor for USL in 2010, when some of the transactions that were red-flagged in the annual report allegedly took place. 

"The audit firm that conducted the forensic audit was the auditor for the period within which the alleged irregularities occurred. Do shareholders rely on PwC's statutory audit or PwC's forensic audit?" asked Tandon. PwC says the two issues are separate. 

"PwC UK was engaged in September 2014 to investigate, with the assistance of PwC India, a specific set of issues as part of an internal enquiry initiated by the board of USL. This was completely separate, independent and carried out by people not involved in the historic statutory audits of USL performed by Price Waterhouse in India, the last of which was for the year ended March 31, 2011," said Jamie Harley, head of media relations at PwC UK. (Economic Times)
 
 
 
 
 
 
 

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