SRBC, part of EY India, resigns as auditor of IL&FS citing RBI regulations
“We would further like to inform you that the Board of Directors of the Company vide resolution dated September 29, 2021, subject to the approval from members, have approved appointment of M/s. CNK Associates LLP as Statutory Auditor of the Company for FY 2021-22,” IL&FS said in a statement.
This comes on the heels of a report by the audit regulator, National Financial Reporting Authority (NFRA).
NFRA in its audit quality review report in the case of IL&FS Transportation Networks Limited (ITNL) had pulled up the auditor, SRBC & Co, part of EY India network, and said that appointment of the firm was “illegal and void” under the standards of auditing (SAs).
NFRA, part of the Ministry of Corporate Affairs (MCA), in a 343-page report on Thursday said that the audit firm did not issue proper red flags in critical areas like going concern, evaluation of ITNL’s investments and loans among other things.
The regulator has also questioned the independence of the auditor in the audit, claiming that the firm which is associated with EY India, provided “non-audit” services as well.
NFRA has still not come up with any penalty for the audit firm.
“The Audit Firm has failed to maintain documents as per SAs. 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),” the NFRA report said.
The report said that SRBC has failed in meeting the requirements set under the SA in preparing the financial statements of ITNL for FY 2017-18.
The central bank has tightened the norms for appointing auditors and has capped their numbers based on the asset size of the lenders with an aim to prevent wide variations in asset classification and misleading accounts statements. Banks shall take prior approval from the RBI on the appointment of auditors, but non-bank lenders can go ahead with just intimating the regulator.
As per the new norms, banks will be required to take prior approval of the RBI for appointment or reappointment of statutory auditors on an annual basis. For entities having an asset size of more than Rs 15,000 crore, statutory audit will be conducted under joint audit of a minimum of two audit firms. All other entities should appoint a minimum of one audit firm for conducting statutory audit.
“It shall be ensured that joint auditors of the entity do not have any common partners and they are not under the same network of audit firms,” the regulator said.
The RBI has set criteria for audit firms regarding the number of audits they can undertake at a time, and how they should conduct them. The central bank also wants firms to have a particular size to audit banks and NBFCs.