PwC, others under NFRA lens for abrupt auditor resignations

MUMBAI: The National Financial Reporting Authority (NFRA) is investigating abrupt resignations of statutory auditors in the last few months, including PwC India that recently resigned from GVK Power as the regulatory body of auditors’ steps up gas on erring auditors after India Inc. was hit by a spate of frauds in the last two years.

Price Waterhouse Chartered Accountants, part of PwC India, on August 13 quit as the auditor of GVK Power and Infrastructure claiming the company was not cooperating in the audit work for their Mumbai airport operations.

The resignation comes at a time when both the Central Bureau of Investigation (CBI) and Enforcement Directorate (ED) are investigating the operations of the company.

According to the people in the know, NFRA is set to question PwC on whether the auditor had raised any red flags earlier in the reported results.
When contacted, a spokesperson for Price Waterhouse, part of PwC India, said, “We are unable to comment since we are bound by our confidentiality obligations.”

NFRA did not respond to an ET query.

People close to the development said that NFRA would be issuing a notice to PwC in the coming days seeking clarification regarding its audit of GVK.

CBI has alleged that GVK Group chairman, GVK Reddy and his son Sanjay Reddy, were inflating figures of the company.

CBI investigations show that the promoters were also using nine other private firms to camouflage the inflated figures using sham deals with unidentified Airports Authority of India officials.

ED too is investigating the possibility of money laundering and registered an information report under Prevention of Money Laundering Act (PMLA).

This would be the second time the NFRA, part of the Ministry of Corporate Affairs (MCA) is questioning PwC following a resignation.

NFRA had questioned the audit firm after it alleged that it had picked up certain irregularities in the audit of Reliance Capital and Reliance Home Finance. PwC resigned as the auditor of both the companies in July 2019.

NFRA is also looking into the abrupt resignations by several audit firms in the last few months since the Covid pandemic began.

As per the current regulations, audit firms have to disclose a reason for their resignation from a company. Many auditors in the last few months have claimed they were resigning as the clients were unable to pay higher fees.

However, insiders point out that in many cases, this may just be a smoke screen for the real reason—discomfort in signing fudged accounts or disagreement with management on key audit calls.

In the last few months, several banks, NBFCs, real estate and hospitality companies and their auditors have had serious differences on accounting treatments on topic-areas like future viability, cost calculations and asset write-offs.

In some instances, especially involving the multinational firms, global teams too have asked their Indian entities to get out of risky audits.

Most large audit firms have also roped in their risk teams to assess how risky auditing a company was. Global audit teams of the firms have internally put certain sectors in a high-risk category and local firms are being extra cautious with companies in those sectors.