Speaking to CNBC-TV18 soon after Financial Technologies' auditor said that the FY13 earnings are no longer reliable , Ranina says that the company has allegedly committed a very serious offence by presenting false accounts.
Amarjit Chopra, former president, ICAI additionally says that though the case is unprecedented, the auditor will have to explain the circumstances under which he is withdrawing his report.
"The auditor will have to justify the circumstances under which he is withdrawing it. He will have to prove that this particular information was suppressed or probably he could have carried it out of context. Whether it was his negligence or something else this can come to light only little later," highlights Chopra.
Below is the edited transcript of Ranina and Chopra's interview to CNBC-TV18.
Q: If you are familiar with what is going on, now the auditors are saying that the FY13 earning that were revealed by the Financial Tech management is no longer reliable. Can you just run us through the implications and what this means?
Ranina: It means that the accounts cannot be treated as being correct, that the balance sheet and profit and loss (P&L) account do not present a true and fair view and if they are unreliable, then that means that the accounts have to be rejected. One cannot put them up for approval before the shareholders, because obviously the auditors have clarified that this is not the true picture.
Q: What do you expect to happen next? Do you see the Institute of Chartered Accountants of India (ICAI) stepping in? Do you see the management being holed up? Could this have legal implications now?
Ranina: Yes, of course. They can be holed up both under the Companies Act and by Sebi as well for presenting false accounts to their shareholders. It is a very serious offence. Obviously they may have not yet filed the tax return, that will come in a little later before their due date, but these accounts cannot be accepted.
As things stand today, if these accounts are presented to the shareholders then the management can certainly be holed up saying that you are presenting false account and obviously the shareholders will disapprove and not allow this thing to go through tomorrow.
Q: The NSEL Annual General Meeting (AGM) is tomorrow and the three point agenda which has been deferred includes the first one I mentioned to receive, consider and adopt the audited balance sheet as on 31st March, 2013 and the profit and loss account of the year ended. Second one was to ratify the payment of interim dividends and to declare a final dividend. Third most important considering with the chartered accountants and the auditor remains that they were looking to appoint Deloitte Haskins & Sells who are the current auditors of the company and the retiring statutory auditors of the company to hold office from the conclusion of the AGM. These three have been put on hold. Clearly, it means that tomorrow in the AGM the balance sheet which has been already out of 2013 remains insignificant for all the shareholders, am I right?
Ranina: You are absolutely right. If these items have been deferred, obviously they will go ahead with the AGM because there is a requirement of the Companies Act that you should see AGM within six months from the end of the financial year. So, what will happen tomorrow is that technically shareholders' meeting will be held, but the shareholders' meeting will be deferred to a subsequent date, because these three important items will not be considered tomorrow. By doing this, they will be able to get some more time to present the correct accounts once they are audited or re-audited by their auditors.
Q: I was told by sources within the auditing fraternity that because the NSEL audit report has been withdrawn as a result or a consequence of what has been going on with National Spot Exchange, the auditors to FTIL which is the promoter to NSEL have also said that the standalone as well as the consolidated financial statements of the company should no longer be relied upon so is this a chain reaction of sought because the subsidiaries audit is no longer valid, the audit report is no longer valid, the parent company was forced to do the same?
Chopra: I can only say that there is standard on auditing. That is 560. Before the date the financial statements are issued. It also talks about facts which become known to the auditor after the financial statements have been issued.
It really provides the remedy to the auditor in those cases and says the auditor will not apply and not perform any procedure then he will discuss the matter with management and wherever it is appropriate he will discuss the matter with people who are charged with the governance and determine whether the financial statements needs amendments or not.
After that if the management mends the financial statements, the auditor shall carry out the audit procedures in the circumstances on the amendment and he can even review the steps taken by the management. Post that he can report the company is well informed of the situation.
There is a clear cut paragraph within Auditing Standard 560 which provides all for those kind of contingencies. Yes, it is something unprecedented, it generally does not happen. I can only say that it has not been happening in India, abroad it has been happening somewhere or the other.
Q: I have been given to understand that the reason why Financial Technologies auditor has said that its financial statement both standalone and consolidated cannot be relied upon is because the NSEL audit report has been withdrawn. Financial Technologies is invested in NSEL hence either on the standalone basis or on a consolidated basis FTILs financial statements do not reflect true picture as it is today does that explanation make sense to you?
Chopra: I fully agree with you. It seems that it is a question of chain reaction here. The auditor should come out to explain what are the circumstances in which he is trying to withdraw his report.
Q: Is the auditor obliged to do that, because the press release that we have seen come in has come in from FTIL?
Chopra: I am very clear on that. The auditor will have to justify the circumstances under which he is withdrawing it. He will have to prove that this particular information was suppressed or probably he could have carried it out of context, whether it was his negligence or something else this can come to light only little later.
I will not be able to comment upon that, but as I said it is an unprecedented situation to be in, but the standard really provides for those kind of situations very rightfully.
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