The National Financial Reporting Authority (NFRA) on Wednesday pointed to lapses in the statutory audit of Infrastructure Leasing and Financial Services Ltd (IL&FS) conducted by SRBC & Company LLP. and alleged that the appointment of the auditor itself violated the independence norms.
The findings of the audit watchdog came in the latest audit quality review of IL&FS in terms of compliance with auditing standards and effectiveness of the audit firm’s quality control procedures. The government had superseded the board of directors of IL&FS in 2018 due to a series of defaults by the group companies.
“NFRA observed that the initial appointment of SRBC & Co. LLP and continuation of SRBC & Co. LLP as statutory auditor of IL&FS Ltd. was in violation of the norms of independence. This is because its network (Ernst & Young Global Ltd. / EY) has provided prohibited services to IL&FS Group and also had business relations with Ouditi (IL&FS) Group,” the regulator alleged in its report.
The NFRA pointed out that the audit firm, in its preliminary submissions, stated that the NFRA has wrongly held the auditor at fault for violation of the provisions of the Companies Act, ICAI Code of Conduct and other applicable laws.
An SRBC spokesperson expressed confidence in the firm’s full compliance with the norms. “Over the last three years, SRBC & Co LLP (SRBC) has fully cooperated with NFRA. We are currently reviewing the Audit Quality Review Report. We are confident of our audits which are conducted in accordance with applicable laws and professional standards,” the spokesperson said.
NFRA alleged that the audit firm failed to properly verify the investments of IL&FS shown in the standalone financial statements. It also alleged that the audit engagement was suffering from self-review and self-interest threats, therefore, failed to meet the independence criteria and SRBC should not have accepted the appointment as auditor in the first place.
According to industry experts, the financial crunch of IL&FS due to liquidity pressure and asset liability mismatch being faced by the non-banking sector. Statutory auditors are of the view that there is ambiguity in the law on non-audit services that an auditor can provide to his client. (End)