Auditors sought additional information on crisis-ridden DHFL accounts

The two statutory auditors of crisis-ridden housing finance company Dewan Housing Finance Corporation (DHFL), Deloitte Haskins and Sells and Chaturvedi & Shah, had on June 6 sought additional financial information from the company to reconcile its annual results for the 2018-19 financial year, invoking Section 143 of the Companies Act, 2013. The section includes rules and regulations for auditors to report instances of fraud or suspected fraud.


According to the rules, which were last amended in 2015, the company is supposed to provide the information or give their observation within 45 days of receiving the request from the auditor. In case of DHFL, the 45-day period ends on July 21.


The audit committee of DHFL in its board meeting on July 13 asked the management to provide the audited financial results of the company by July 22. In a filing to the market regulator on Saturday, the company said that “unreviewed and unaudited IND AS standalone financial results” were placed before the audit committee and the board of directors on July 13.


The non-bank finance company released unaudited financial numbers reporting a standalone net loss of Rs 2,233 crore for the quarter ending March 2019, citing higher provisioning requirements.


Sources indicated that the auditors, who are still in the process of reconciling the financial numbers for FY19, refused to sign the results without the additional information or observations by the company sought by them. According to protocol, the audited financial results have to be approved by the Audit Committee before the auditors sign on them.


Company law requires auditors to report instances of fraud in a company detected by them to the Ministry of Corporate Affairs. When contacted, DHFL refused to comment on the issue. It may be noted that in January this year there were allegations against the company’s management and promoters over end use of certain funds loaned.


Facing pressure to meet repayment obligations, the housing finance company is currently in the midst of a lender-monitored restructuring and in the process of entering an inter-creditor agreement. Lenders have indicated that they will go ahead with any re-structuring exercise only after a thorough review of audited financial results for FY19.


Therefore, a lot is at stake on the outcome of the July 22 board meeting. Before that the management has to satisfy the auditors and the audit committee on the sanctity of the financial numbers.

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