Independent regulator National Financial Reporting Authority (NFRA) in its review of the statutory audit of IL&FS Transportation Networks Limited (ITNL) for 2017-18, has noted that the initial appointment and continuation of the company's audit firm was “prima facie illegal and void”.
Making some serious observations in its audit quality review report of ITNL's account books, NFRA has said that the company's financial exposure to its associate firms totalling around Rs 3,346 crore was not valued as per accounting norms.
Also ITNL's losses during 2017-18, the year for which the accounts were evaluated, were understated by around Rs 2,021 crore, the report as quoted by the Ministry of Corporate Affairs, said.
NFRA also observed that ITNL's audit firm failed to properly evaluate the use of the “going concern” basis of accounting by the management and therefore failed to gauge the implications in the auditor's report.
Going concern is an accounting term, which is used for a company that has resources required to continue operations for an indefinite period of time.
NFRA prepares audit quality reports of companies under the provisions of Companies Act and NFRA Rules of 2018, which require it to monitor and ensure compliance by companies with the country's accounting and auditing standards.
The independent regulator was set up by the government in October 2018 after a need was felt to set up a body for enforcing accounting standards in the corporate sector in order to enhance people's confidence in financial disclosures of companies.