IFIN case: Auditors set to take on SFIO

Auditors accused of conniving with the management of a subsidiary of Infrastructure Leasing and Financial Services (ILand FS) are gearing up for a legal battle, as they profess their innocence and affirm faith in the judicial system.The Serious Fraud Investigation Office (SFIO) has named audit firms Deloitte Haskins and Sells, KPMG affiliate BSR and Associates, and AP Shah and Associates — along with some of their senior executives — in the chargesheet filed in the case involving ILand FS Financial Services ( IFIN ), the controversial subsidiary of the scam-hit ILand FS. In all, 30 individuals and entities have been named in the chargesheet filed by the probe arm of the Ministry of Corporate Affairs (MCA).The chargesheet has accused BSR, Deloitte and others of colluding with the IFIN management to conceal information and falsify accounts. “...(auditors) colluded with officials of the companies in order to conceal their fraudulent activities and thus they failed to perform their duty as required”, the chargesheet said.While sections of the media (including ET) have reported on the contents of the chargesheet, none of the audit companies has officially received any communication so far in this regard. Still, the audit companies have approached several law firms and are seeking legal advice, said people with direct knowledge of the matter.In the past, Deloitte India has worked with Wadia Ghandy and Company while KPMG India usually works with AZB and Partners.Responding to ET’s queries, a Deloitte spokesperson said the firm had not been served the chargesheet.“Deloitte Haskins and Sells LLP (DHS) is confident that its audits were performed in accordance with the applicable professional standards, and is cooperating fully with the investigative authorities. DHS LLP’s defence, which will be supported by facts, will be presented to the courts and other relevant authorities as and when required,” the spokesperson said.A spokesperson for BSR and Associates said the firm remained committed to the highest standards of ethics and audit quality. “We have full faith in the judicial system and will vigorously defend our position in accordance with the law, if and when it becomes necessary,” the spokesperson said.He added that BSR and Associates had transitioned into the audit of IFIN as a joint auditor only in FY18. “We were not the auditors for ILand FS or any other material subsidiary of ILand FS. We stand by our audit, which was performed in line with the applicable auditing standards and regulations,” the spokesperson said.An executive at a law firm said the audit companies were seeking legal opinion as to where they stand and what steps could be taken.According to the SFIO, the auditors did not raise any red flags about the IFIN management adopting fraudulent practices to ensure loan and credit facilities were not classified as non-performing assets (NPAs). “The auditors, despite having knowledge of funding the defaulting borrowers for principal and interest which was prejudicial to the interest of the company and its creditors besides having awareness of the impact of the same on financial statements, failed to report in the report for FY13-14 to FY17-18,” said the probe agency in its chargesheet.The auditors, on their part, claim they had raised red flags in the form of qualifying the financial statements of IFIN.Deloitte was the sole auditor of IFIN till 2016-17. In 2017-18, the company was jointly audited by Deloitte and BSR. In 2018-19, the company was audited only by BSR.AP Shah and Associates, which had provided end-use certificates for the loans given by IFIN from 2009-10 onward, has also been named in the chargesheet.The SFIO chargesheet and the naming of auditors comes at a time when the ‘Big Four’ audit firms are facing regulatory heat in the country.PwC was banned from auditing listed companies for two years by the Securities and Exchange Board of India (Sebi) last year over its involvement in the Satyam Computers scam. Late on Monday evening, the Reserve Bank of India banned EY member firm SR Batliboi and Company from auditing commercial banks for a year starting April 1, 2020, citing lapses in statutory audit.According to sources, the SFIO investigation report could be used to take some action against the audit firms concerned, and the Ministry of Corporate Affairs could even be exploring the option of a ban.Executives in the audit firms said they were taking legal opinion for such an eventuality. “If the firms are banned, then that order can be challenged in various fora,” said a lawyer aware of the matter.