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ICAI to probe Auditors role in United Spirits fund diversion
PrintThe Institute of Chartered Accountants of India (ICAI) will ask two auditors of United Spirits Ltd (USL) to explain on what basis they certified the financial accounts of the company and failed to detect an alleged fund diversion of Rs 2,100 crore between 2010 and 2013 to various United Breweries (UB) group entities.
The fund diversion was detected by a team of forensic auditors of PricewaterhouseCoopers (PwC) UK. They were ordered by the new board of USL, led by managing director and chief executive Anand Kripalu.
The ICAI is a self-regulatory body of auditors and it steps in to take action against members facing allegations of faulty or substandard auditing. The USL accounts were audited by Usha Narayanan of Price Waterhouse till 2010-11 and later by Ashish Singh of Walker, Chandiok & Co, when the company was owned by the UB group, led by chairman Vijay Mallya.
Neither auditor raised red flags, but in the annual report of 2013-14, auditors from BSR & Co said there was no clarity on loans and advances to various UB group entities. The USL management then called in PwC UK for a forensic audit of the previous three years.
ICAI insiders say the disciplinary committee will investigate the matter. In the Satyam Computers case, the ICAI had debarred two auditors from Price Waterhouse who were found guilty of professional misconduct. S Gopalakrishnan and T Srinivas were struck off the ICAI’s rolls and fined Rs 5 lakh each. The Satyam auditors are in jail after a Central Bureau of Investigation court convicted them of fraud.
A USL spokesperson declined to comment on the issue. In the annual report for 2013-14, USL auditor BSR & Co, appointed by Diageo, pointed out the company had advanced certain amounts to a few UB group entities between 2010 and 2013 and there was no clarity on recovery. “These claims received in the current year may indicate that all or some of such amounts may have been improperly advanced from the company to such parties for, in turn, being advanced to UB group entities,” the auditor said asking for an detailed enquiry.
In another instance, the auditors said USL had received a letter dated May 5, 2014, from the lawyers of an alleged claimant saying it had advanced loans amounting to Rs 200 crore to Kingfisher Airlines in December 2011 and January 2012. USL was alleged to have created a lien on certain investments in favour of the claimant as security for these loans. USL denied knowledge of any such transaction.
The new auditor also said USL and its subsidiaries had various pre-existing loans/advances/deposits due from United Breweries (Holdings) Ltd (UBHL). During the current year, pursuant to a previous resolution passed by the board of directors on October 11, 2012, these dues and interest were consolidated into an unsecured loan aggregating Rs 1,337.4 crore in an agreement dated July 3, 2013.
The loan has been granted for a period of eight years with a moratorium period of six years. Certain lenders have filed petitions for winding up against UBHL. UBHL has provided guarantees to lenders and other vendors of Kingfisher Airlines, which have been invoked and are being challenged in courts.
Based on its assessment of the recoverability of the loan, USL made a provision of another Rs 330.3 crore against the loan outstanding and has not recognised the interest income of Rs 96.3 crore on the loan.
In a reply to the auditor, the USL management said it should be able to recover, and no further provision was required for, the balance amount of Rs 995.7 crore though the company would attempt to recover the entire amount of Rs 1,422.3 crore. But by April this year, USL asked its Chief Financial Officer P Murali to resign and later even asked Mallya to resign as chairman. Mallya has refused to resign. (ICAI - Business Standard)
The fund diversion was detected by a team of forensic auditors of PricewaterhouseCoopers (PwC) UK. They were ordered by the new board of USL, led by managing director and chief executive Anand Kripalu.
The ICAI is a self-regulatory body of auditors and it steps in to take action against members facing allegations of faulty or substandard auditing. The USL accounts were audited by Usha Narayanan of Price Waterhouse till 2010-11 and later by Ashish Singh of Walker, Chandiok & Co, when the company was owned by the UB group, led by chairman Vijay Mallya.
Neither auditor raised red flags, but in the annual report of 2013-14, auditors from BSR & Co said there was no clarity on loans and advances to various UB group entities. The USL management then called in PwC UK for a forensic audit of the previous three years.
ICAI insiders say the disciplinary committee will investigate the matter. In the Satyam Computers case, the ICAI had debarred two auditors from Price Waterhouse who were found guilty of professional misconduct. S Gopalakrishnan and T Srinivas were struck off the ICAI’s rolls and fined Rs 5 lakh each. The Satyam auditors are in jail after a Central Bureau of Investigation court convicted them of fraud.
A USL spokesperson declined to comment on the issue. In the annual report for 2013-14, USL auditor BSR & Co, appointed by Diageo, pointed out the company had advanced certain amounts to a few UB group entities between 2010 and 2013 and there was no clarity on recovery. “These claims received in the current year may indicate that all or some of such amounts may have been improperly advanced from the company to such parties for, in turn, being advanced to UB group entities,” the auditor said asking for an detailed enquiry.
In another instance, the auditors said USL had received a letter dated May 5, 2014, from the lawyers of an alleged claimant saying it had advanced loans amounting to Rs 200 crore to Kingfisher Airlines in December 2011 and January 2012. USL was alleged to have created a lien on certain investments in favour of the claimant as security for these loans. USL denied knowledge of any such transaction.
The new auditor also said USL and its subsidiaries had various pre-existing loans/advances/deposits due from United Breweries (Holdings) Ltd (UBHL). During the current year, pursuant to a previous resolution passed by the board of directors on October 11, 2012, these dues and interest were consolidated into an unsecured loan aggregating Rs 1,337.4 crore in an agreement dated July 3, 2013.
The loan has been granted for a period of eight years with a moratorium period of six years. Certain lenders have filed petitions for winding up against UBHL. UBHL has provided guarantees to lenders and other vendors of Kingfisher Airlines, which have been invoked and are being challenged in courts.
Based on its assessment of the recoverability of the loan, USL made a provision of another Rs 330.3 crore against the loan outstanding and has not recognised the interest income of Rs 96.3 crore on the loan.
In a reply to the auditor, the USL management said it should be able to recover, and no further provision was required for, the balance amount of Rs 995.7 crore though the company would attempt to recover the entire amount of Rs 1,422.3 crore. But by April this year, USL asked its Chief Financial Officer P Murali to resign and later even asked Mallya to resign as chairman. Mallya has refused to resign. (ICAI - Business Standard)
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