Appointment of BSR as an Auditor of IFIN was illegal - NFRA
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NFRA part of Ministry of Corporate Affairs (MCA) in a 256 page report on Monday said that KPMG violated the requirements laid down by Companies Act and code of ethics mandated by Institute of Chartered Accountants of India.
The non-audit services provided technically by the KPMG labelled entities of the network are clearly services indirectly provided by the BSR entities,” NFRA said in the report.
ET had first written on July 17 about NFRA’s report on BSR and how the firm did not adhere to auditing standards. NFRA had then sought the KPMG India affiliate’s comments.
“We are concerned to note the conclusions by NFRA in the Audit Quality Review as they do not give due consideration to all the facts and circumstances that were transparently shared by us with NFRA during their review. We are reviewing the report in detail and will determine our response in due course. Audit quality remains the cornerstone of our profession and we recognize the challenges that lie ahead to improve audit quality across the profession in India. We remain committed to support NFRA’s efforts in this regard,” a BSR spokesperson said.
NFRA investigations are crucial as the regulatory body has power to ban an audit firm for up to 10 years.
The NFRA report also said that BSR did not have “adequate justification” for issuing an audit report of IFIN. “BSR and other entities in its network de facto use the KPMG Trade Mark and Brand Name for all their audit and non-audit services, while making a clearly futile attempt to show a de jure separation from KPMG. This attempt will fail in view of the clear public perception of the BSR network entities being part of the larger KPMG global network, and also the legal agreements between them,” NFRA report said.
The report also alleged that even in cases when the auditor was not convinced about the numbers reported by IFIN management and knew that they were “clearly in the wrong” they “went along with the numbers.”
“they (BSR) went along with the wrong numbers disclosed in the Financial Statements, contenting themselves with only an Emphasis of Matter (EOM) para in the Auditor’s Report, when such EOM is justified only when the disclosure requirements as per the SAs are fulfilled,” the report said.
NFRA had launched an investigation into audits of IFIN, Infrastructure Leasing and Financial Services (IL&FS) and IL&FS Transportation Networks Ltd (ITNL). NFRA’s investigation is focused on the IL&FS fraud after the infrastructure financier failed to meet its debt obligations last autumn, triggering a confidence crisis in India’s non-bank lending industry.
Deloitte, EY and KPMG were three main auditors that audited IL&FS, ITNL and IFIN at different times. Deloitte was the principal auditor for IL&FS till 2016-17 and was replaced by SRBC & Co, an EY affiliated firm, for the next two fiscal years.
For ITNL, Deloitte Haskins and Sells was the sole auditor in 2015 and joint auditor along with SRBC & Co in 2016-17. From 2017 to 2019, SRBC took over as sole auditor. For IFIN, Deloitte was the sole auditor till 2016-17, joint auditor along with BSR & Co for 2017-18. BSR took over as the sole auditor of the company from 2018-19. #casansaar (Source - PTI, NFRA, Economic Times)
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