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India Accuses Deloitte Of Misreading Law In Challenging Government's Call For Ban

By Lawstreet News Network      Jul 17, 2019      0 Comments      621 Views
India Accuses Deloitte Of Misreading Law In Challenging Government's Call For Ban

The Indian government has accused the local auditing affiliate of international accounting group Deloitte Touche Tohmatsu of misreading a key law by trying to avoid a five-year ban on new business, according to reports.

The government had called for a five-year ban on Deloitte practicing in India, citing the firm’s alleged involvement in financial misconduct over the audit of IL&FS. The government detected several violations of auditing standards by Deloitte and a KPMG affiliate while investigating fraud at IFIN, a unit of Infrastructure Leasing & Financial Services, whose debt defaults last year triggered fears of a financial contagion. Both auditors deny any wrongdoing.

Deloitte‘s filing showed it last month argued the government case should be dismissed because it came after the auditor’s 10-year stint at IFIN ended. The last audit it did was for the fiscal year to March 2018.

The alleged fraud began to be exposed last autumn and Deloitte argues that the law doesn’t allow the government to take into account the firm’s previous work.

Ministry of Corporate Affairs has called Deloitte’s reading of the law “narrow and pedantic”, according to legal documents seen by Reuters.

“A fraud that continues till date on account of errant past auditor … can undoubtedly be covered” under Indian law provisions, the government said in its 13-page filing, adding Deloitte was misreading and incorrectly interpreting the law.

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,” it added.

The National Company Law Tribunal in Mumbai will hear the case next on July 22, 2019.

‘Organised Crime’

A spokesman for Deloitte told Reuters that it had been advised the government’s case was “not maintainable”, declining to comment further. It has previously said “it has been thorough and diligent” in its duties as an auditor.

India 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.

The auditing firms gave clean audit reports and “miserably failed to fulfil the duty entrusted to them,” the government has alleged, saying the fraud at IFIN was “nothing short of organised crime, actively aided and abetted by the statutory auditors.”

In its filing, the government also said that 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 KPMG affiliate accused in the case, BSR & Associates, has also denied the allegations and said it performed IFIN’s audit in accordance with the applicable auditing standards and legal framework. BSR audited IFIN alongside Deloitte in the year to March 2018, and then was the sole auditor for the 2018-19 year. It resigned days after the government filed the tribunal case last month.

Whichever way the Indian tribunal rules, the government’s allegations have already cast a shadow on local operations of big foreign auditors, who audit many of the foreign companies in India, as well as large domestic firms.

“We are already seeing evidence of some of our global clients being spooked by this and the extent of the punishment being sought,” said a senior partner with a global audit firm.

Deloitte KPMG
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