FT group auditors run for cover after Mayaram panel's report

Panel said balance sheet of FY13 did not depict true and fair picture; Deloitte withdrawal followed report

The adverse remarks in the report of a special team that probed the Rs 5,600-crore ‘payment crisis’ have jolted the auditors of the National Spot Exchange Limited (NSEL) and Financial Technologies India Limited (FTIL).

The Special Team of Secretaries (STS) headed by Economic Affairs Secretary Arvind Mayaram has said there “could be possible violations” by entities like “auditors failing in due diligence”. The team was set up by Finance Minister P Chidambaram in August.

The panel, which submitted its recommendations on September 20, also said action needed to be initiated over “failure to furnish true and fair view of the state of affairs at NSEL in its balance sheet for the financial year ended March 31, 2013”.

Deloitte Haskins and Sells, the statutory auditor of FTIL, has asked stakeholders not to rely on the accounts it had earlier certified as “true and fair”.

On September 21, a day after the report was submitted, Mukesh P Shah & Co, the auditor of NSEL, informed the company that the accounts of FY13 could not be relied upon. When Deloitte came to know about this, it informed FTIL that the parent accounts of FY13 also could not  be relied upon.

On September 24, a day before the scheduled annual general meeting, FTIL informed the exchanges that Deloitte had informed that the accounts it certified could no longer be depended upon. FTIL had to withdraw certain resolutions, related to the approval of accounts and reappointment of Deloitte as auditor from the annual general meeting held on September 25.

A source close to Deloitte, however, said though the audit firm was not aware of any adverse remarks by the Mayaram committee, it did not have any option but to withdraw reliance, following the action taken by the auditor of NSEL. A Deloitte spokesperson refused to comment.

The STS has referred the violation of company law provisions under Section 211, 217 and 542 for investigation by the Serious Fraud Investigation Office (SFIO).

“The investigation can also be started by SFIO on the basis of reference received from the Department of Company Affairs,” the report said.

While Section 211 deals with failure to present a true and fair view of the state of affairs in the balance sheet, Section 217 deals with a similar violation in the board’s report attached to the balance sheet. Section 542 deals with “carrying on the business with intent to defraud any person or for any fraudulent purpose”.

BELATED DAMAGE CONTROL

• May 2013: Deloitte audits and certifies FTIL's accounts
• July 31: NSEL suspension of contracts, payment crisis erupts
• July 31-September 20: No action by auditors
• September 20: Mayaram panel submits report damning auditors
• September 21: NSEL auditor withdraws reliance on FY13 balance sheet
• September 23: Deloitte withdraws reliance on FTIL’s FY13 accounts
• September 24: Exchanges informed about Deloitte withdrawal

    Source: Exchange filings, news reports