Mint Explainer: What is behind ICAI's review of Byju's financial statements?

What does ICAI’s review of financial statements of companies entail?

ICAI takes up financial statements of companies including the auditor’s report for a review either on its own accord or on a reference from a sectoral regulator. The review involves multiple stages. The financial statements are first examined by an independent reviewer and then by a panel of experts before ICAI’s Financial Reporting Review Board (FRRB) takes a look at the documents. Where material violations by the auditor are detected, the matter is referred to ICAI’s disciplinary committee for initiating investigation and action against the auditor. If the auditor has flagged any irregularity in the company, that forms the basis for other regulators to take action under their respective laws. If the non-compliance of the auditor is not material and does not affect the true and fair view of the financial statements, then the auditor is issued an advisory.

Which are the entities that are within the purview of ICAI's financial reporting review?

All commercial, industrial and business reporting entities, the net worth of which exceed ₹250 crore in the immediately preceding accounting year are within the purview of FRRB. Byju's had reported a net worth of ₹8,255 crore in the regulatory filings for FY21. While regulators like ICAI and National Financial Reporting Authority (NFRA) follow the set parameters for selection of cases for review, any other cases based on references from government agencies in public interest may also get covered.

Also, entities with equity or debt securities listed or about to get listed on any stock exchange in India or abroad, banks, co-operative banks, financial institutions and entities carrying on insurance business are within the purview of FRRB. The holding or subsidiary entities of any of these enterprises are also covered under the FRRB’s scope of review. Other entities, the accounting non-compliance of which are brought to the notice of FRRB may also get their financial statements reviewed if the board decides it is required in public interest.

Which all financial statements of Byju’s are being reviewed by FRRB?

FRRB has undertaken the review of Byju’s (Think and Learn Pvt. Ltd.) standalone financial statements as a special case for FY20 and FY21.

What did auditors and company directors say about these financial statements?

Deloitte Haskins & Sells audited the FY20 and FY21 financial statements of the company. There was no qualifications, reservations or adverse remarks by the statutory auditor in their report for the FY20 financial statements, the company’s directors reported to the authorities. However, the statutory auditor, in its report, identified “material weaknesses in the company's internal financial controls over financial reporting as of 31 March 2021,"as per regulatory documents for FY21. The company’s directors, in their response, said that the accounts and finance department was staffed with experienced and skilled personnel, a new internal auditor had been appointed and directors were working with the management to reorganize the finance department of the company and were in the process of establishing protocols and procedures for improved functioning of the finance department.

What are the other regulatory developments around Byju’s?

An inspection of the books of accounts of the company by the Registrar of Companies (RoC) is currently underway in the aftermath of the resignation of Deloitte Haskins & Sells as the company’s auditor and the delays in filing the company’s financials with the RoC. The scope of the inspection of books is to ensure that there is no non-compliance with any of the extant regulations under the Companies Act.