The Indian government has banned Deloitte Haskins & Sells LLP from doing business in the country following allegations of shoddy work and non-compliance to global accounting standards.
In a significant development, Indian authorities have told a tribunal, Deloitte Touche Tohmatsu’s local auditing affiliate is misreading a key federal law. The development comes in the wake of Deloitte Haskins & Sells LLP trying to dodge a five year ban following allegations of involvement in a financial fraud.
Following detections of several violations of auditing standards by affiliates of auditing firms KPMG and Deloitte at IFIN, a unit of Infrastructure Leasing & Financial Services whose debt defaults last year triggered fears of a financial contagion, the Indian government has come down heavily on these accounting firms.
Both auditors have denied wrongdoing.
Deloitte has argued that the government’s case against it should be dismissed since it comes in after its 10-year stint at IFIN ended. Its last audit at IFIN was for the financial year ended on March 2018.
The fraud at IFIN began to be exposed last autumn, said Deloitte while adding that the law only allowed such a ban to be imposed if the auditor was actively auditing the company at the time.
India’s Ministry of Corporate Affairs countered saying, “A fraud that continues till date on account of errant past auditor … can undoubtedly be covered”. In its filing, the Indian government stated, if Deloitte’s interpretation of law was to be accepted, it would mean any auditor who commits fraud, but resigns before legal proceedings are initiated against it, can’t be banned in the country.
The Indian government made it lucidly clear that the law was intended to “weed out an errant auditor from practicing so that corporate democracy, transparency and the economy of the country is not destabilizing”.
Indian authorities had detected auditing failures as part of its wide-ranging probe into alleged fraud and mismanagement at IFIN, which has also been investigated by several other agencies including the Serious Fraud Investigation Office and the central bank.
Both auditing firms had given clean audit reports to IFIN, said Indian authorities. KPMG and Deloitte had “miserably failed to fulfill the duty entrusted to them,” said the government while adding that the fraud at IFIN was “nothing short of organized crime, actively aided and abetted by the statutory auditors”.
The case is being heard at the National Company Law Tribunal in Mumbai.
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