Advisory firms call into question Auditors role in USL fallout

After the Satyam Computer Services accounting scandal, the spotlight has been turned on auditors again as at least three investor advisory services have called for an examination of the auditors’ role in the ongoing fight between United Spirits Ltd board and its chairman Vijay Mallya.

The board wants Mallya to step down after a probe showed that certain transactions between 2010 and July 2013 were subject to various improprieties and legal violations, according to an USL statement to stock exchanges. The inquiry also revealed that these transactions appear to have been undertaken to show a lower exposure of ÜSL to United Breweries (Holdings) Ltd. It also showed that funds involved in many of these transactions were diverted from USL and its subsidiaries to some UB Group companies, including, Kingfisher Airlines Ltd.

This inquiry, in part, was a forensic audit carried out by PricewaterhouseCoopers. But the same firm was the statutory auditor of USL for 2010-11, which is part of the periodunder investigation. In its auditors report for that year, Price Waterhouse said that “we have neither come across any instance of fraud on or by the company, noticed or reported during the year, nor have we been informed of such case by the management.”

But the same firm conducting the statutory and forensic audit, albeit in different years, has raised questions of conflict of interest. “The audit firm that conducted the forensic audit was the auditor for the period within which the alleged irregularities occurred! Do shareholders rely on PwC’s statutory audit or PwC’s forensic audit,?” says a report from Institutional Investor Advisory Services (IiAS), an advisory firm.

In the next two financial years, 2011-12 and 2012-13, the statutory auditors of USL were Walker, Chandiok and Co. This firm too, didn’t notice anything untoward in USL’s numbers, saying “No fraud on or by the Company has been noticed or reported during the period covered by our audit. “

“IiAS believes that auditors must be asked to justify their audit quality. Auditor rotation typically brings fresh oversight thereby enhancing the quality and objectivity of the audit process. However, in USL’s case, the two changes in auditors yielded no results,” continued the IiAS report.

It was only in 2013-14, a fresh set of auditors, BSR & Co qualified their audits bringing attention to these issues. “We don’t comment on any company specific or client specific subject or stories,” said a spokesperson of Walker, Chandiok & Co in an email. A PwC spokesperson in an email said, “PwC UK was engaged in September 2014 to investigate, with the assistance of PwC India, a specific set of issues as part of an internal enquiry initiated by the board of USL. This was completely separate, independent and carried out by people not involved in the historic statutory audits of USL performed by PriceWaterhouse in India, the last of which was for the year ended 31 March 2011.” But that is not enough to assuage advisors to investors. (Indian Express)