Whistleblower stings Infosys again; alleges irregularities in accounting

Experts say no significant diversion from past accounting practices reported by the IT firm in recent quarters

India's second largest IT services firm Infosys' run-ins with whistleblowers appear to be unending. After a gap of two years, an anonymous whistleblower group called 'Ethical Employees' has alleged that the company’s current management was taking 'unethical' steps to spur short-term revenue and profits.

In a statement, Infosys said, "The whistleblower complaint has been placed before the audit committee in line with the company's practice and will be dealt with in accordance with our whistleblowers policy."  

According to the whistleblower's complaint to US Securities and Exchange Commission and the board of Infosys, the Bengaluru-based firm's current CEO Salil Parekh was not taking necessary approvals before entering into large deals. "Several billion-dollar deals of last few quarters have nil margin," the letter said. "In large contracts like Verizon, Intel, joint ventures (JVs) in Japan, ABN AMRO acquisition, revenue recognition matters are forced," the letter added.

The whistleblower group also alleged that the current management had asked the complainants not to fully recognise the visa costs in the second quarter apart from deferring the recognition of $50 million worth reversals in a contract.  

"CEO and CFO are asking us to show more profits in treasury by taking up risks and make changes to policies. This will provide short-term profits," the letter said. "They ask us not to make key disclosures in 20F and annual report and to share only good and incomplete information with investors and analysts," it added.

The group also alleged that all information relating to large deals, was not shared with auditors. "We have emails and voice recordings and we will share when investigators ask us," the letter said.

Corporate governance officials, however, said that the allegations lacked the specifics. "We can't jump to conclusions based on the letter as it lacks the specifics and is too generic in nature," said Amit Tandon, founder & MD of corporate governance and proxy advisory firm IiAS.

Auditors familiar with accounting standards also said that Infy’s approach to revenue recognition remained consistent with the new regulations. "In our opinion and to the best of our information and according to the explanations given to us, the interim condensed consolidated financial statements give a true and fair view in conformity with International Accounting Standard 34 'Interim Financial Reporting' of the consolidated state of affairs of the group as on September 30, 2019," Deloitte, the auditor for Infosys, said in its audit report for the just ended quarter.

The allegations of misreporting have come at a time when Infosys has improved its performance both in revenue and profitability aspects. While it has revised its revenue guidance for the second time this fiscal, the second quarter also witnessed 120 basis points improvement in its operating margin at 21.7 per cent.

"This news of whistleblower allegations could act as an overhang over the share price of Infosys tomorrow. But, Infosys has a track record of good governance practices, so the impact may not be much," said a Mumbai-based analyst with a foreign brokerage firm.

Last time Infosys had faced allegations from whistleblowers during the tenure of Vishal Sikka in 2016-17 who left the company over corporate governance issues.