The alleged Rs 15 lakh crore financial misreporting by the Bengaluru-based Rajesh Exports has raised questions over the role of its statutory auditors and the accuracy of their audit.
Two relatively unknown auditors, PV Ramana Reddy, the proprietor at PV Ramana Reddy & Co, and PL Venkatadri, partner at BSD & Co, provided audit services to Rajesh Exports during the investigation period between FY21 and FY24.The auditors seemingly failed to red flag not one or two but dozens of apparently questionable transactions, including related-party transactions, pumping up of domestic revenues and misreporting of trade payables. This allowed the alleged financial misreporting to go on for five years, causing losses to 2 lakh small investors holding shares of Rajesh Exports.On June 3, market regulator the Securities and Exchange Board of India(Sebi) passed an ex parte interim order barring Rajesh Exports chairman and managing director Rajesh Mehta from dealing in securities markets. It also ordered the company to rectify the incorrect filings and cooperate with the investigation.The Sebi order also said auditors did not cooperate with the investigation. It had asked them for various audit papers which were not provided.
“REL's Statutory Auditors, despite undertaking to furnish audit working papers during their depositions, have also not complied. This sustained non-cooperation is itself indicative of an intent to suppress material information and obstruct regulatory inquiry,” Sebi said.Emails sent to BSD & Co and PV Ramana Reddy did not elicit a response by the time of publication. Moneycontrol will update the copy once comments are received.A company's auditors are liable in case of any audit lapses, a responsibility which is significantly more serious in case of listed firms. In the past, Sebi has issued orders against some of the large audit firms for failing to ensure accurate documentation.The National Financial Reporting Authority(NFRA), too, can issue orders against such auditors.
Key misses by Rajesh Exports' auditorsA large part of the Rs 15 lakh crore of allegedly misreported revenues was on account of revenue generated by the foreign subsidiaries of Rajesh Exports.However, these statements are not audited by Indian auditors but by the designated professionals in the country where the company is incorporated. For foreign subsidiaries, Indian auditors rely on the audited statements of the foreign entity provided by the Indian company.The Sebi order, however, also pointed to several domestic transactions, which violated rules but were neither detected nor flagged by the auditor.For instance, standalone revenues of Rs 12,500 crore, representing 64 percent of the company's total standalone revenue between FY21 and FY24, were misrepresented. The auditor allegedly did not seek finer details such as invoices while auditing the company.Also, Mehta executed gold derivative trades in his personal capacity. He sold Rs 11,487 crore worth of such contracts and purchased Rs 11,488 crore through a Sebi registered broker Affluence. These were reported as transactions carried out by the company.
The auditor also allowed reduction in long outstanding receivables worth Rs 2,914 crore through opaque netting arrangements without adequate disclosures explaining the nature and basis of such adjustments, the market regulator said.The auditors also failed to present a true and fair view of the company's financial position by incorrectly including intra-group investments worth Rs 2,501 crore (as on March 31, 2025) and intra-group trade payables worth Rs 1,457 crore (as on March 31, 2025) and Rs 1,379 crore (as on March 31, 2024) in consolidated statements, the interim order said.The auditors also failed to flag that REL's consolidated statements incorrectly included intra-group investments of Rs 2,501 crore and intra-group trade payables of Rs 1,457 crore (as on March 31, 2025) and Rs 1,379 crore (as on March 31, 2024), which should have been eliminated under standard consolidation accounting, the Sebi order said.
Key misses by Rajesh Exports' auditorsA large part of the Rs 15 lakh crore of allegedly misreported revenues was on account of revenue generated by the foreign subsidiaries of Rajesh Exports.However, these statements are not audited by Indian auditors but by the designated professionals in the country where the company is incorporated. For foreign subsidiaries, Indian auditors rely on the audited statements of the foreign entity provided by the Indian company.The Sebi order, however, also pointed to several domestic transactions, which violated rules but were neither detected nor flagged by the auditor.For instance, standalone revenues of Rs 12,500 crore, representing 64 percent of the company's total standalone revenue between FY21 and FY24, were misrepresented. The auditor allegedly did not seek finer details such as invoices while auditing the company.Also, Mehta executed gold derivative trades in his personal capacity. He sold Rs 11,487 crore worth of such contracts and purchased Rs 11,488 crore through a Sebi registered broker Affluence. These were reported as transactions carried out by the company.
The auditor also allowed reduction in long outstanding receivables worth Rs 2,914 crore through opaque netting arrangements without adequate disclosures explaining the nature and basis of such adjustments, the market regulator said.The auditors also failed to present a true and fair view of the company's financial position by incorrectly including intra-group investments worth Rs 2,501 crore (as on March 31, 2025) and intra-group trade payables worth Rs 1,457 crore (as on March 31, 2025) and Rs 1,379 crore (as on March 31, 2024) in consolidated statements, the interim order said.The auditors also failed to flag that REL's consolidated statements incorrectly included intra-group investments of Rs 2,501 crore and intra-group trade payables of Rs 1,457 crore (as on March 31, 2025) and Rs 1,379 crore (as on March 31, 2024), which should have been eliminated under standard consolidation accounting, the Sebi order said.
Report by Pawan Burugula & Swaraj of Network18
No comments:
Post a Comment