NFRA Finds Serious Lapses In Deloitte’s Audit Of IL&FS
NFRA has found serious lapses in Deloitte’s Audit of IL&FS. As per the regulator, audit firm Deloitte, Haskins & Sells LLP allowed the management of IL&FS Financial Services Ltd to conceal negative capital ratios so as to save the company’s NBFC license.
Over 11 months of review the NFRA found that Deloitte failed to comply with the requirements of auditing standards and that “the instances of failure noticed are of such significance…that DHS did not have adequate justification for issuing the audit report asserting that the audit was conducted in accordance with the auditing standards”.
Of the most egregious failures on the part of Deloitte, NFRA found that Deloitte accepted the non-banking financial company management’s decision not to disclose that net owned funds and capital to risk assets ratio were both negative. Reporting of negative NOF and CRAR would have led to cancellation of the firm’s NBFC license.
The AQR also stated that :
- Deloitte did not display the required professional skepticism, and did not challenge the management on important issues.
- Deloitte did not adequately question the going concern assumption on basis of which management prepared financial statements.
- The independence of the auditor was compromised by the provision of non-audit services for substantial fees. These non-audit service
- Deloitte did not question management and challenge inflation of profit by over Rs 180 crore.
- The Engagement Quality Control Review was “a complete sham”.
- Deloitte failed to appropriately deal with identification, categorisation and minimisation of engagement risk. The engagement partner signed the audit report without discharging most of the important duties that such an audit partner has to fulfill.
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