An associate of global accounting firm Ernst & Young in India, SV Ghatalia & Associates, auditors of the beleaguered National Spot Exchange (NSEL) for 2011-12, has been kept outside the purview of scrutiny by the Institute of Chartered Accountants in India (ICAI) into the factors that led to the payment crisis. 

"The ICAI is yet to receive any complaint against E&Y or its associate Ghatalia and, hence, there is no scrutiny against them at this point in time," said a member of the ICAI committee on condition of anonymity. 

The ICAI, the licensing and regulatory body for accountants, is examining the role of auditors in the default at NSEL. The books of NSEL were audited by Mukesh P Shah & Co for 2012-13. 

The crisis erupted in August after it was found that the exchange was in no position to honour payouts worth Rs 5,500 crore to its investors and the underlying stock was woefully short against the receipts issued. Even as NSEL borrowers have filed a formal complaint against Mukesh P Shah, the ICAI says it has received none against Ghatalia or E&Y. 

However, the ICAI has written to the Forward Markets Commission, asking it for documents and data to decide whether to probe E&Y or Ghatalia, the member cited above said. 

ICAI president Subodh Kumar Agrawal did not comment on the issue. The key focus of ICAI's probe will be to ascertain whether NSEL's auditors failed to carry out aphysical assessment of stock lying with the exchange, said a person familiar with the development. 

According to rules of accounting standards, the stock constitutes an important segment of current assets and imposes a responsibility on auditor to ensure that they are properly disclosed in the financial statements. 

Experts say the auditor is required to be present at the time of counting of inventories to ensure they exist and to assess their condition, which was not done in NSEL's case. 

Many ICAI committee members say there should be a probe against all the previous auditors of NSEL in the light of the fact that Anjani Sinha, the erstwhile managing director and chief executive of the exchange has confessed that defaults were piling up at the exchange for the past couple of years. 

"There is nothing that can stop the ICAI from going back and probing even the previous auditors of NSEL, but this can be done if they believe there is a case to do so," said Mukund Chitale, chairman, National Advisory Committee on Accounting Standards. 

In NSEL's case, the auditors have failed to arrive at a correct assessment of the underlying stock against the receipt of the same issued to 13,000 investors. It has been established that NSEL did not have even 20% of the stock that it claimed was under its possession. 

Mukesh P Shah withdrew its audit report on NSEL on September 21 after the irregularities came to light. Following this, Deloitte, Haskins and Sells too withdrew its report on NSEL's parent, Financial Technologies, on September 23. (Economic Times)