Regulator raps auditor for not flagging IL&FS arm's financial health

IL&FS Transportation Networks, SRBC & Co, National Financial Reporting Authority, EY India network, IL&FS Fraud, Companies Act

India’s audit regulator, in its quality review report in the case of IL&FS Transportation Networks Ltd (ITNL), has pulled up the auditor, SRBC & Co, for failing to issue warnings on the company’s worsening financials.

The audit firm, which is part of the EY India network, did not issue proper red flags in critical areas like going concern, evaluation of ITNL’s investments and loans among other things, the National Financial Reporting Authority (NFRA) said in a 343-page report.

The regulator has also questioned the independence of the auditor, claiming that the firm provided “non-audit” services as well, and hence its appointment was “illegal and void” under the standards of auditing (SAs).

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It said SRBC has failed in meeting the requirements set under the SAs in preparing the financial statements of ITNL for 2017-18.

“The integrity of the audit file is questionable due to tampering and inconsistency pointed out at several places in the AQRR (audit quality review report).”

SRBC said it is disappointed with the conclusions in the NFRA report. “We are presently doing a detailed review of the report,” a company spokesperson said.

“Over the past two years, we have cooperated fully with NFRA and provided the requested information,” the person said. “We are disappointed with the conclusions in the audit quality review report of ITNL for FY 2017-18. SRBC & Co LLP (SRBC) had performed the audit as per the applicable standards and highlighted the issue relating to going concern in our limited review report for the June 2018 quarter.”

NFRA has not yet imposed any penalty on the company.

“The services provided directly by SRBC to ITNL are in the nature of accounting and bookkeeping services, design and implementation of a financial information system, and management services, which are violative of the code of ethics and prohibited services under Section 144 of Companies Act,” the report said.

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