The National Financial Reporting Authority (NFRA), the newly created regulator for auditors, has begun full-fledged investigations into the audit failure at Infrastructure Leasing and Financial Services (IL&FS) after taking over the job from the Institute of Chartered Accountants of India (ICAI) in April this year. 

NFRA, part of the ministry of corporate affairs (MCA), has asked auditors of IL&FS, IL&FS Financial Services (IFIN) and IL&FS Transportation Networks Ltd (ITNL) to submit hard copies and give cloud access to all audit related documents. 

It has sought details from about 40 auditors including three of the Big Four firms. Deloitte Haskins and Sells, BSR & Co, part of KPMG India, and SRBC & Co, part of EY India, were asked to submit documents. Some of the Indian firms have already received notices, while others would receive these in the coming days, two people with direct knowledge of the matter said. 

“Firms were asked to submit hard copies of all the documentary evidence but many firms now have online platforms where they conduct audits. Executives from these firms were asked to come to NFRA and give keys to cloud access so that the online documents could be viewed,” one of the people in the know added. 

Mails sent to EY and Deloitte did not elicit any response. 

“They (NFRA) have reached out and BSR & Associates has fully cooperated with the authorities in their investigations and will continue to do so,” a BSR spokesperson said. 

NFRA’s is a separate investigation specifically focussed on the IL&FS fraud. ET first reported on April 27 that NFRA had issued notices and taken over the quality review of IL&FS audits from ICAI. NFRA started a process similar to the quality review of audit and asked ICAI to back off. Following this, the Quality Review Board (QRB), set up by the government to evaluate the services provided by ICAI members, withdrew its letters and stopped the probe. The Centre has already approached the National Company Law Tribunal (NCLT) and sought a ban on Deloitte and BSR for five years for their alleged role in concealing bad loans at IFIN. Many fear NFRA can technically slap penalties and even ban audit firms independently from what NCLT decides on the issue. NFRA can ban a firm for up to 10 years and additionally slap financial penalties. This could be over and above the NCLT ruling. NFRA has issued notices to at least half a dozen Indian firms as well, which were auditing subsidiaries of IL&FS group. 

There are several auditors in the subsidiaries of the IL&FS group, mainly in ITNL, where there were many special purpose vehicles. Some major Indian firms including Shah Modi Katudia and Luthra & Luthra were auditors to the subsidiaries. In some of the foreign subsidiaries of the group, Grant Thornton and network firms of PwC were also auditors, according to the data available on IL&FS auditors. 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 - Economic Times)