ITNL board accepts statutory auditor SRBC's resignation after NFRA rap

The SRBC tendered its resignation from all assignments of ITNL earlier after audit regulator National Financial Reporting Authority (NFRA) found several audit failures on the part of the auditor on its work on crisis-ridden ITNL.

"We wish to inform that at the audit committee meeting held on October 4, 2021, SRBC & Co LLP, statutory auditors, has expressed their intention to resign as auditors of the company. Pursuant thereto, the audit committee had recommended the proposal of SRBC to the board of directors. At the meeting of the board of directors, the proposal for resignation of SRBC was approved," ITNL said in an information sent to exchanges on Tuesday.

In its Audit Quality Review (AQR) report of the statutory audit of ITNL, the NFRA had raised fresh doubts over the ability of statutory auditors in presenting true facts   about the accounts of ITNL. 

In its report, the NFRA not only termed initial appointment of SRBC & Co LLP, and its continuation as statutory auditor of ITNL as illegal and void, but it also questioned the audit firm's failure to appropriately and sufficiently evaluate the use of the going concern basis of accounting by the management and thus, miss out on registering the implications thereof in the Auditor's Report.

The NFRA audit quality review for ITNL came for the period of 2017-18. This is the year when the board of IL&FS was superseded by the government and a new management under Uday Kotak put in place to correct the mishandling of the group and resolve debt running over Rs 90,000 crore.

The AQR said that ITNL's financial exposure to its subsidiaries, associates and joint ventures amounting to Rs 3,346 crore was not properly valued as per the applicable accounting standards.

The company's losses during 2017-18 were understated by at least Rs 2,021 crore on account of unjustified reversal of Expected Credit Loss (ECL) on loans given to the SPV and on trade receivables, and due to incorrect impairment valuation. This is excluding the impact due to incorrect treatment of the letter of comforts amounting to Rs 2,654 crore, which should have been correctly treated as financial guarantees as per the accounting standards, the effect of which on profit/loss is not quantified, the NFRA review of the ITNL's accounts said.