New Delhi, Sep 23 (IANS): The National Financial Reporting Authority (NFRA) has raised fresh doubts over the ability of statutory auditors in presenting true facts about the accounts of IL&FS Transportation Networks Ltd (ITNL), a subsidiary of beleaguered infrastructure financier IL&FS.

In its Audit Quality Review (AQR) report on the statutory audit of ITNL, the NFRA has not only termed the initial appointment of SRBC & Co LLP, and its continuation as statutory auditor, of ITNL as illegal and void, but has also questioned the audit firms' failure to appropriately and sufficiently evaluate the use of the going concern basis of accounting by the management and thus, missing out on registering the implications thereof in the auditor's report.

The NFRA audit quality review for ITNL has come for the period of 2017-18. This is the year when the board of IL&FS was superseded by the government and a new management under Uday Kotak put in place to correct the mishandling of the group and resolve debt running over Rs 90,000 crore.

The AQR said that ITNL's financial exposure to its subsidiaries, associates, and joint ventures amounting to Rs 3,346 crore was not properly valued as per the applicable accounting standards.

The company's losses during 2017-18 were understated by at least Rs 2,021 crore on account of unjustified reversal of Expected Credit Loss (ECL) on loans given to the SPV and on trade receivables, and due to incorrect impairment valuation. This is excluding the impact due to incorrect treatment of the letter of comforts amounting to Rs 2,654 crore, which should have been correctly treated as financial guarantees as per the accounting standards, the effect of which on profit/loss is not quantified, the NFRA review of the ITNL's accounts said.

The audit firm's EQC partner has failed to report material misstatements known to him to appear in a financial statement with which he is concerned in his professional capacity and has not exercised due diligence to obtain sufficient information to objectively evaluate the significant judgements of the engagement team and conclusions reached by them, the AQR said.

It added that the audit firm has failed to maintain documents as per SA 230. The integrity of the audit file is questionable due to tampering and inconsistency pointed out at several places in the AQR.