New Delhi, Aug 17 (IANS): The National Financial Reporting Authority (NFRA) has found that KPMG's arm BSR and Associates LLP was illegally appointed the statutory auditor of IL&FS Financial Services (IFIN) for 2017-18.
The authority's Audit Quality Review Report (AQRR) of BSR and Associates noted that the firm was not eligible to be appointed as an auditor due to violation of Section 141(3)(e) for subsisting business relationships on the date of appointment, and Section 141(3)(i) for provision of non-audit services directly or indirectly, of the Companies Act, 2013.
"Consequently, the certificate provided by the audit firm in terms of Section 139 (1) was also fraudulent, having been provided despite such illegality," the report said.
The authority was of the view that BSR and other entities in its network de facto use the KPMG Trade Mark and Brand Name for all their audit and non-audit services, while making a "clearly futile attempt to show a de jure separation from KPMG".
This attempt will have to fail in view of the clear public perception of the BSR network entities being part of the larger KPMG global network, and also the legal agreements between them, the report said.
"The non-audit services provided technically by the KPMG-labelled entities of the network are clearly services indirectly provided by the BSR entities, and thus result in gross violations of the independence requirements for auditors laid down under the Companies Act, as well as the Code of Ethics mandated by the Institute of Chartered Accountants of India," it said.
The NFRA found that the audit firm, despite knowing about major misstatements by the management in its financial reporting, did not highlight them.
The IFIN was not compliant with the minimum Net Owned Funds (NOF) and Capital to Risk Assets Ratio (CRAR) prescribed for an NBFC of its type, as of March 31, 2018, the report said, adding that these numbers were actually heavily negative, against a minimum positive requirement and this non-compliance had continued since some time.
The financial statements of a NBFC have to disclose these numbers, but IFIN's decided to show positive numbers.
The audit quality review showed that BSR was convinced that the IFIN management was clearly in the wrong, but they went along with the wrong numbers disclosed in the financial statements, contenting themselves with only an Emphasis of Matter (EOM) paragraph in the Auditor's Report, when such EOM is justified only when the disclosure requirements as per the standards of auditing are fulfilled.
"Thus, BSR failed to highlight a material misstatement of major magnitude and fundamental importance," it said.
KPMG's arm BSR and Associates and Deloitte Haskins and Sells have been under the lens in the alleged IFIN fraud case. In March this year, the National Company Law Appellate Tribunal (NCLAT) had dismissed the pleas of both audit firms along with independent directors to challenge their impleadment in the alleged fraud.