The National Financial Reporting Authority (NFRA), the country’s sole independent audit regulator, has found several deficiencies in the statutory audit conducted by EY member firm SRBC & Co LLP of Infrastructure Leasing & Financial Services (IL&FS) for the financial year 2017-18.
The 390-page audit quality review report (AQRR) concluded that the audit firm did not have adequate justification for issuing the audit report asserting that the audit was conducted in accordance with the Standards of Auditing and the financial statements give a true and fair view.
The audit quality is thus seriously compromised due to the large-scale non-compliance with regulatory and legal requirements, and the inappropriate reporting made by the audit firm. These lapses prevented the investors, creditors and stakeholders from knowing on time the true and fair picture of the state of affairs of IL&FS. If the audit firm had been vigilant, shown professional scepticism, sufficiently challenged management assumptions and claims and strictly complied with its audit responsibilities, such lapses by IL&FS perhaps could have been detected much earlier and the tens of thousands of crore of losses and haircuts that the banks, creditors, and investors were ultimately saddled with would have been averted.
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