The National Financial Reporting Authority (NFRA) has concluded that KPMG affiliate BSR & Co did not follow standards of accounting in signing off on financial statements of beleaguered financial services firm, IL&FS Financial Services Ltd (IFIN) for FY18.
The NFRA also noted that the appointment of BSR & Co as auditors for IFIN was itself invalid under the Companies Act, as KPMG provided a number of services to IFIN that an auditing firm is not permitted to provide to clients under the Companies Act.
IFIN is the largest subsidiary of IL&FS Group, which defaulted on debt obligations in September 2018 . “The instances of failure to comply with the requirements of Standards of Auditing (SA) are of such significance that it appears to the NFRA that the audit firm did not have adequate justification for issuing the audit report asserting that the audit was conducted is accordance with SAs,” the NFRA said in its audit quality review report.
The report noted BSR & Co did not obtain sufficient audit evidence for IFIN crediting items on its income statement which led to an inflation of Rs 609 crore in its reported net profit. The NFRA concluded BSR & Co failed to highlight that IFIN had misreported net-owned funds and capital-to-risk assets ratio, which was a material misstatement of fundamental importance. BSR & Co said, “We are concerned to note the conclusions by NFRA in the Audit Quality Review as they do not give due consideration to all the facts and circumstances that were transparently shared by us with NFRA.”
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