IL&FS fraud case in brief : Charge on Deloitte and KPMG

In the IL&FS fraud case, Rs.90,000crores scam. SFIO detected at least 22 violations of auditing standards by Deloitte Haskins & Sells and a KPMG affiliate BSR & Co. while investigating a fraud at a financial company, leading it to seek a five-year ban pusuant to section 140(5) of the Companies Act, 2013 on the auditors, according to the government.

After the government took over IL&FS, federal investigators began looking into one of its key financial units, IFIN, which was audited by Deloitte between 2008-09 and 2017-18, and by a KPMG affiliate, BSR & Associates, from 2017-18. The auditing firms gave clean audit reports and “deliberately” failed to report fraudulent activities to which both auditors have denied wrongdoing and IL&FS did not respond to a request for comment. The fraud committed at IFIN is nothing short of organised crime, actively aided and abetted by the statutory auditors,” said the ministry filing.

The National Company Law Tribunal (NCLT) asked Deloitte and the KPMG affiliate to file their responses on the allegations, set June 21 as the hearing date to which there is not any required update. The government has urged the tribunal to impose a five-year ban on the two auditors, for which an 800 page chargesheet has been filed for the same. It has also sought to bar the accounting firms from selling any of their properties while the case is heard, legal filings showed.

The IL&FS crisis has since last year spooked stock markets and cast a pall over on India’s shadow banking sector, which comprises of more than 10,000 firms with a combined balance sheet of about Rupees 2,09,60,89,12,00,000. “IFIN may only (be) the tip of the iceberg, as the rest of the IL&FS Group companies are still under investigation,” the government filing said.

Hence, if proven, Deloitte will join the ignominious league of Price Waterhouse (PWC) which SEBI debarred from auditing listed companies and market intermediaries for two years in the Satyam fraud.

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