The National Financial Reporting Authority (NFRA) has said that the appointment of Deloitte Haskins and Sells LLP as the statutory auditor of IL&FS Financial Services Ltd (IFIN) for 2017-18 was “illegal”.
With the auditor not considering certain items, including unjustified valuation of a derivative asset, profit of IFIN was inflated by Rs 609 crore in 2017-18, it said.
The Supplementary Audit Quality Review Report (SAQRR) dated December 7, 2020 produced the latest conclusion.
The watchdog conducted an Audit Quality Review (AQR) of the statutory audit of IFIN for the 2017-18 period. The AQR Report was issued on December 12, 2019.
The SAQRR covers issues that were not covered in the AQR Report. According to the SAQRR, the appointment of DHS as the statutory auditor of IFIN for the year 2017-18 was “illegal”, since the entity was not eligible to be appointed as an auditor due to violations.
Those are “subsisting business relationships on the date of appointment” and “provision of non-audit services directly or indirectly” of the Companies Act, 2013.
A Deloitte India spokesperson said that Deloitte Haskins and Sells (DHS) LLP will review the report.
The NFRA said that DHS failed to comply with the requirements of the Standards on Auditing (SAs).
“The instances of failure noticed are of such significance that it appears to NFRA that DHS did not have adequate justification for issuing the audit report asserting that the audit was conducted in accordance with SAs,” as per the executive summary of the SAQRR.
The latest report said that IFIN’s reported Profit Before Tax was Rs 201.96 crore in 2017-18 but the amount does not take into account three items, including unjustified valuation of a derivative asset at Rs 184 crore. The reversal of general contingency provision of Rs 225 crore and non-provision for impairment in the value of investments to the tune of Rs 200.20 crore were also not considered.
The ‘NFRA found that the IT processes/ platform have deficiencies that are systemic and structural in nature and arise from a complete disregard for basic principles of IT security in the software used. This makes the audit documentation completely unfit for the intended purpose,” it noted. In December last year, the NFRA had said DHS failed to comply with auditing standards in carrying out statutory audit of IFIN. Besides, actions have been taken by the regulator against some individual auditors.
Subscribe Taxscan Premium to view the Judgment
