BSR & Associates, part of global accounting firm KPMG’s network in India, has resigned as an auditor of IL&FS Financial Services (IFIN), which is being probed by multiple agencies for alleged financial irregularities.
The announcement comes a day before a hearing at the National Company Law Tribunal (NCLT), where the government has sought a ban on BSR and fellow auditor Deloitte Haskins & Sells for their alleged role in concealing bad loans at Infrastructure Leasing & Financial Services (IL&FS) and its group firms including IFIN. After the alleged financial irregularities came to light, the government had replaced the IL&FS board with one headed by banker Uday Kodak.
The board last month sought an explanation from BSR on why it should not be removed as the auditor of IFIN.
In a news release on Thursday, BSR said it explained its position to the board but has yet to get a response. It resigned on Wednesday. “We had filed our written response to this notice on May 24, 2019 and provided explanations during a meeting held with IFIN on May 29, 2019. While IFIN has not communicated its decision to us as yet, we do not intend to impose ourselves as auditors of the company,” the audit firm said.
Conflict of Interest
“Our resignation will allow the company to appoint another auditor so that the work on the audit for FY2019 may progress. We believe we have discharged our duties in good faith and have acted in a bona fide manner and we will continue defending ourselves,” it said.
The government is seeking a five-year ban on both audit firms, invoking for the first time a provision in the Companies Act. If the plea is accepted, it would prevent both firms from auditing any listed or unlisted company in India.
IFIN was audited by BSR in 2018-19 and jointly by BSR and Deloitte in 2017-18. Deloitte was the sole auditor in 2015-16 and 2016-17.
The Ministry of Corporate Affairs had also sought the removal of both BSR and Deloitte as the auditors of IFIN.
During a hearing on June 10, Deloitte’s lawyers argued that the firm was no longer an auditor of IFIN.
If the NCLT accepts the government plea, IFIN would have to first appoint an auditor, which could happen only through the NCLT as per current regulations. The process may take a couple of months as the board has still not reached out to any accounting firms, said company insiders. Most of the major auditors may opt out of auditing IFIN, either because of conflict of interest or due to the risk associated with a company that is in a financial crisis and is facing investigations over fraud, said industry insiders. The Big Four of EY, Deloitte, KPMG and PricewaterhouseCoopers have audited or have done some other work for IFIN or the IL&FS Group firms, which may create conflict situations if they take up the work.
Source: Economic Times