Infibeam terminates E&Y’s unit as auditor citing lapses; latter opens for neutral probe

In an unsurprising move, Infibeam’s board has recommended terminating the services of its auditor SRBC & Co. LLP, the audit arm of one of the Big Fours - Ernst & Young (EY). The company alleged that auditor had shared Infibeam’’s Unpublished Price Sensitive Information (UPSI) with personal email accounts of their team and third party on multiple occasions.

However, the auditor has hit back with refuting claims and challenges for an open investigation by any third-party entity.

Making breach of trust and loss of faith as grounds, the company has gained the board’s approval to terminate auditor. “The investigation team of the auditor confirmed that there are no technical means to verify that there was no further sharing/distribution of company UPSI sent to personal accounts and third party,” mentioned a company’s press statement.

Significantly, Shah & Taparia (also an auditing body along with SRBC & Co in raising alarms), Chartered Accountants will continue to be the statutory auditors of the company.

It’s worth noting that SRBC & Co has had raised several alarms over advance payment made to vendors, its merger with payment gateway – Avenues India Pvt Ltd (formerly CCAvenue) and financial statement reported in the first quarter of FY19.

On contrary to Infibeam’s board call, S.R.B.C. & CO has refuted allegations made by the public firm and emphasised on open scrutiny of its observations. “We are confident of our position and open to third-party/regulatory investigation and will respond to the regulators, as required,” S.R.B.C. & CO said to PTI .

Since auditor has been raising a string of objections, its termination isn’t surprising for many analysts Entrackr spoke to.

“Removal of auditor certainly raises many questions on the company as well as EY. I must say, reasons cited for terminating SRBC & Co. is not substantial and concerns raised by the auditor can’t be ruled out given Infibeam reputation,” said an analyst tracking Infibeam’s on condition of anonymity.

Asking for an independent investigation over its merger with CCAvenue and statement related matters materialised in the first quarter of FY19, SRBC & Co LLP had asked Infibeam to conduct an independent investigation in both matters in January 2019.

A month later, the auditor also frowned upon the absence of robust documentation for recognising Rs 32.01 crore revenue during the quarter ending December 2018.

According to auditors, about Rs 24 crore out of the reported revenue belonged to the first and second quarter. It also had asked for an explanation from management over the process involved in calculating charges for web development and maintenance services.

While both parties claim that they are right at their parts, it would be crucial to see how auditor defends its findings/observations at a time when one of the Big Fours - Deloitte is likely to face a lengthy ban over irregularities in auditing IL&FS accounts.