It was not long ago that the government had imposed a ban on audit firm BSR & Co for its alleged role in helping hide bad loans of IL&FS Financial Services Ltd (IFIN). Now, it is back in the news after YES Bank mess came to light. Reports suggest that RBI is monitoring the role of the audit firm closely.
As per media reports, BSR & Co, a KPMG affiliate, is under Reserve Bank of India’s (RBI) scanner right now. The regulator is inspecting the activity of the auditor to see if the firm signalled any divergence in the accounts of YES Bank or it went unnoticed again. Over the last two years, RBI has been closely monitoring the auditors and these audit firms feel there has been a lot of pressure on them lately from various regulators, stated a source.
According to a report by Mint in 2019, Yes Bank’s auditor BSR & Co, has sought fresh audit after complaints were levelled by a whistleblower. The development comes after a special audit done by JLN US & Co. turned out to be inconclusive.
The ban imposed by the government on BSR & Co (for IL&FS case) was lifted after the Bombay High Court stayed the proceeding against the firm, at least saving them last time. “But with the name of BSR & Co coming up in other controversial cases, one can expect some pressure on them yet again,” stated the source.
BSR & Co, the present auditor of YES Bank, was appointed after its previous auditor, SR Batliboi & Co (an EY affiliate) was pulled up for their failure in auditing.
It is not just RBI that will inspect BSR & Co, Financial Reporting Review Board (FRRB) of the Institute of Chartered Accountants of India (ICAI) has decided to take up the review of general-purpose financial statements of YES Bank for Financial Year 2017 - 18 and 2018 – 19 as well. ICAI in its statement, said, “ In case the FRRB finds any material / serious non-compliance, it would refer the case to the Director (Discipline) of ICAI for initiating action against the Auditor under the Chartered Accountants Act, 1949. As far as the management of the enterprise is concerned, the FRRB would inform the regulatory body relevant to the enterprise.”
According to the RBI audit last year, YES Bank had under-reported bad loans. While the bank reported gross NPAs of Rs 7,883 crore in FY19, RBI identified NPAs worth Rs 11,160 crore. It was in FY16 that the divergence to the tune of Rs 4,176 crore and then of Rs 6,355 crore in the FY17 was found.
BSR & Co is not the only audit firm that has been in trouble. In the past, many big audit firms like Price Waterhouse, the audit arm of PwC; SR Batliboi & Co and others have been banned and also pulled up for their activities.