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The irregularities, which involved an alleged embezzlement of funds and transactions between the two companies and other companies in the group, came to light during the audit of the two companies’ books for the first quarter ending in June 2019, said two people close to development. PwC has resigned as auditor and informed the Ministry of Corporate Affairs (MCA) of the reasons for his departure, the people said. This was forwarded to MCA on June 11 by Vivek Prasad, partner at PwC.
People close to development said the auditor raised the issues with the company a few months ago and discussions have taken place between the two. Specifically, there appears to have been a problem with some related party transactions and RCap management was willing to issue a letter of recommendation. “The auditors insisted on the fact that they wanted better visibility on certain transactions between the companies of the group”, declared one of the people.
A management representation letter is written assurance given by management to auditors when disputes arise over certain matters.
Others
PARAGRAPH 143 (12) OF THE COS ACT
The company attests to the accuracy of the financial statements and documents submitted and the letter could be based on certain appeals for judgment, such as how to classify a transaction or on specific facts surrounding a transaction.
According to the resignation letter written by PwC and submitted to MCA, the auditors invoked section 143 (12) of the Companies Act in support of their decision. The article deals with a situation where the auditor is looking for information and not getting it from the company. “If the auditor of a company in the performance of his duties as auditor has reason to believe that an offense or fraud relating to such amounts … is committed in the company by its directors or employees, the auditor must report to the central government, â€it says.
“This does not conclude anything but the fact is that information was requested from the company and that it was not provided within 45 days. In such a situation, the auditor is mandated to report it to the MCA, â€said a legal expert, on condition of anonymity.
The RCap led by Anil Ambani informed the stock exchanges early Wednesday morning of PwC’s resignation. RCap attributed this decision to the auditor’s assertion that it had not received a satisfactory response to certain “observations and transactionsâ€. Reliance “does not agree with the reasons given by PwC to justify his resignation. The company has also duly provided all the required and satisfactory details required by PwC, including the certification and confirmations of the transactions in question on several occasions by PwC itself, â€the statement read.
“The reason for the change is the resignation of PwC, one of the auditors. PwC stated that as part of the ongoing audit for the 2018-19 fiscal year, it has noted certain observations / transactions which, in its assessment, if not satisfactorily resolved, could be material or significant to financial statements, and that it has not received a satisfactory opinion. her questions answered, â€Reliance told ET in another statement Wednesday night.
“PwC further stated that although it sent a letter dated April 24, 2019 under the relevant provisions of the Companies Act, the company disputed that it complied with the provisions of the law, notwithstanding a Subsequent letter issued by PwC on May 14, 2019 to reiterate the intent of the letter issued on April 24, 2019, and the company failed to convene an audit committee meeting within the expected timeframe. The company can also take appropriate legal action against the company.
According to PwC, these actions of the company prevented it from performing its duties as an auditor and exercising independent judgment in reporting to the members of the company, and undermined its independence, and therefore, she is no longer in a position to complete the audit and rather feels compelled to withdraw from the audit assignment and resign, â€the statement said.
In a statement to ET, PwC declined to comment, saying it does not comment on customer affairs.
The person cited above adds that questions have been raised around certain transactions and PwC wanted to qualify them.
Reliance also said he disagreed with PwC. “The company duly responded to various questions and letters from PWC and also duly and validly called a meeting of the Audit Committee on June 12, 2019 to further respond to the letter dated May 14, 2019 from PWC. The company expected PwC to have attended the audit committee meeting and not resigned the day before … Regarding the legal proceedings, the company had made it clear that they would not be engaged only in case of legal advice, this too if necessary to protect the interests of all stakeholders, and it is difficult to see how PwC has rejected this approach, â€he said.
This is not the first time that PwC has pulled out of an audit contract. A PwC network company resigned from Vakrangee in 2017, while a Deloitte network company resigned as an auditor at Manpasand Beverages last year.
PwC was also the auditor of Satyam Computer Services when the massive scandal involving the cooking of books by founder Ramalinga Raju occurred. India’s market regulator Securities and Exchange Board of India has banned PwC for two years, but the appeal is pending before the Supreme Court.
Industry insiders point out that auditors, primarily the Big Four – Deloitte, PwC, EY and KPMG – are under tremendous pressure as a result of investigations carried out in Infrastructure Leasing and Financing Services (IL&FS) and two of its subsidiaries. Investigators alleged negligence and collusion between auditors and management in their chargesheet filed in IL&FS Financial Services Ltd.
Most audit firms reassess the risks associated with all of their audit engagements and are unwilling to sign anything that might cause them problems in the future. Three of the big four companies, with the exception of PwC, have been in the spotlight in the IL&FS case.
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