Deloitte Haskins and Sells LLP (DHS) failed to meet auditing standards when it vetted the books of India's IL&FS Financial Services Ltd (IFIN) for the 2017/2018 financial year, the audit watchdog said on Thursday.
IFIN is a unit of Infrastructure Leasing & Financial Services (IL&FS), a major Indian infrastructure financing and construction firm which defaulted on some debts last year, triggering wider concerns about risk in the financial industry.
The government has taken control of the group and has appointed a team to turn it around.
An audit quality review disclosed that Deloitte Haskins failed to comply with required standards on auditing (SAs), the National Financial Reporting Authority (NFRA) said in a statement.
"The instances of failure noticed are of such significance that it appears to NFRA that DHS did not have adequate justification for issuing the audit report asserting that the audit was conducted in accordance with the SAs," NFRA said.
A spokesman for Deloitte India said the IFIN audit for financial year 2017/2018 was a joint audit, adding that the firm's "audits have been performed in accordance with applicable laws, regulations and professional standards in India."
DHS and KPMG affiliate BSR & Associates jointly conducted the 2017/2018 audit.
India has been seeking to ban both auditing firms for five years, alleging lapses in their audits of IFIN, according to a filing by the corporate affairs ministry, Reuters reported in June. Both firms denied any wrongdoing.
NFRA said the audit quality review identified non-compliance with the requirements of SAs and spelled out insufficiencies in the quality controls of audit firms, but was not a rating tool.
The failures noted in the NFRA report included compromising the independence of DHS by "provision of non-audit services for substantial fees" and not challenging IFIN management on issues such as inflation of profit.
The NFRA said it would separately decide whether to initiate disciplinary action against DHS.
