The Role of Auditing in India's Growth Story

As the Indian business landscape scales new heights, certain disciplines underscore the roots that allow such prosperity. Auditing is one such profession. Audited accounts bring about a high level of assurance as well as trust and confidence in the users of financial statements. Keeping the principles of financial transparency, integrity, and accountability at its core, auditing benefits the various active participants in the business community.

The ‘opinions’ provided by auditors have often brought pressing issues (or suspicions) about the company in question into the mainstream public limelight.

For instance, in May 2023, Deloitte issued a ‘qualified opinion’ in regards to the financial statements of Adani Ports, citing the lack of sufficient and appropriate audit evidence in the matter of related party transactions. Related party transactions refer to exchanges of goods, services, or financial arrangements that occur between parties who have a pre-existing relationship. The biggest risk here is that the transactions might only have occurred on paper, courtesy the close relationship between both parties.

The Companies Act, 2013 also empowers auditors to withdraw from an engagement for various reasons, such as non-payment of fees, significant threat to independence, suspicion of fraud etc. When Deloitte resigned from the position of being the auditor of BYJU’s, they did so because they were unable to commence the audit in the first place!

Among other reasons, Deloitte explained that there was a delay in the financial reporting to be done on part of BYJU’s. The preparation of financial statements is the management’s responsibility - this is a fundamental premise on which auditing is based. It so happened that the financial statements pertaining to FY 2021-22, which were to be laid down before the Annual General Meeting (AGM) latest by 30th September, 2022, were not even prepared as of June 2023. Therefore, with the significant delay in the mere process of financial reporting, the process of auditing could not commence and thus Deloitte resigned as the company’s auditor.

The resignation of Deloitte as the auditor of BYJU’s brought considerable scrutiny to the operating results and financial position of the company, which was already reeling under losses due to poorly managed and poorly faring acquisitions.

BYJU’s went on to appoint BDO as their auditor shortly after, a move that they might have decided well in advance, pointing to the possible non-compliance with their prior auditor Deloitte.

In summary, auditing serves a pivotal role in the holistic growth of the Indian business landscape, and becoming more ‘audit literate’ will significantly improve one’s reading of the companies participating in the market today.