Although the audit firms decision to recall FTILs audited financial statements of 2012-13 is within its legal rights, some believe that Deloitte could have done more to ascertain the authenticity of the financial audits of the National Spot Exchange (NSEL), given that the spot exchange accounted for a fair share of FTILs profits.
Ideally, an audit firm should not backtrack from its audits as it raises doubts on the sanctity of the practice. In that sense this development is rare. However, the typical stance that the audit firms resort to is that auditing of books involves evaluating the facts and figures provided by the management and they cannot investigate every transaction, said Praveen Nigam, MD of Amplus Consulting.
Nigam added that when the auditor signs accounts of a firm, they are in essence certifying the prima facie transactions presented to them by the company. However, given that the NSEL settlement crisis was uncovered after the audit report was signed, the accounting firm by law is entitled to withdraw its audit report.
On Tuesday, just a day ahead of its annual general meeting, FTIL announced that Deloitte had withdrawn the audited financials of the company for fiscal 2012-13 on September 23, 2013, citing communications of the management and statutory auditor of NSEL a subsidiary of FTIL. The decision is also believed to be influenced by a reported retraction of audits of NSEL by its accounting firm Mukesh P Shah & Co.
As per FTIL, Deloittes step is based on Standard of Auditing (SA) 560, which allows auditors to take such a step to factor in developments that come to light after it has signed the auditors report. In this case, FTIL's FY13 audit report was signed on May 30, 2013, while the NSEL crisis broke in mid-July this year.
As per corporate tax lawyer H P Ranina, accounting companies are entitled to take a true and fair view of the information provided by the management of a company at the time of the audit. FTIL has also acknowledged that NSEL accounts were not presented correctly and requested Deloitte to recast the account. Hence, the stand taken by Deloitte is lawful, said Ranina.