India’s accounting watchdog, the National Financial Reporting Authority, has found the appointment of EY’s audit affiliate, SRBC and Co, as auditors of Infrastructure Leasing & Financial Services Ltd (IL&FS) “illegal”, and said that the audit firm “compromised” the independence. The audit regulator made public its findings in its 389-page long audit quality review report of the statutory audit of SRBC and Co LLP for the financial year 2017-18.

 

"...the appointment of the Audit Firm as Statutory Auditor of IL&FS Limited was ab initio illegal," the NFRA said.

 

The regulator observed that the initial appointment of SRBC & Co LLP and the continuation of SRBC & Co LLP as statutory auditor of IL&FS was violative of the norms of independence. "This is because its network (Ernst & Young Global Limited/EY) provided prohibited services to the IL&FS group and also had a business relationship with the auditee (IL&FS) group,” it said. The NFRA examined the validity of the audit firm’s appointment as Statutory Auditor of IL&FS in the context of the provision of non-audit services.

 

The regulator noted that the audit firm and its associates received non-audit services fees amounting to ₹4.57 crore in 4 years (commencing from 2015-16), as opposed to audit fee revenue of ₹2.3 crores received for conducting the statutory audit for FY18. This strikes at the very root of the independence of the SRBC, it said.