Ved Jain, chairman, Assocham and former President, ICAI, say that whenever a fraud happen all those issues come up and then there are allegations against the people who are involved in the management, accounting, auditing and of course the promoters as is the case here.
Below is the edited transcript of his interview. Also watch the accompanying video.
Q: Reebok or Adidas, which is the parent company commissioned KPMGs forensic arm in India to do a study in 2010. The report finally didn’t prove fraudulent behaviour either on part of Prem or Bhagat, but complete silence on the part of Adidas or Reebok India in terms of the allegations that they have now gone public with. No qualifications by the auditors, we don’t even know if this report was or was not shared with the statutory auditors of the company, what do you make of it?
A: Whenever a fraud happen all those issues come up and then there are allegations against the people who are involved in the management, accounting, auditing and of course the promoters as is the case here. Issue which needs to be seen is the nature of fraud and the people involved.
This issue came to the light in the year 2010 to the parent company and they had appointed special auditor to carry out the assignment and the report came up. The issue is that, what were the role assigned and vis-à-vis? What the fraud has now come out? In case it turns out yes, the role assigned and the fraud, which has come out and it could have been deducted in the assignment then there maybe an issue. It is going to be a fraud probably committed by the people who are looking after the affairs of a company. There is an allegation that the people who are the helm of affair in India, they manipulated the stock, warehouses, franchisees all those issues have come up.
Q: KPMG as part of its forensic audit seems to have unearthed said that there was no evidence "to prove allegations of possible fraudulent behaviour". Did KPMG not do a good enough job of the due diligence? Was there evidence that suddenly came up that KPMG wasn’t aware of and through all of this there has been no qualification, no communication from Rebook India or Adidas to the public about the fact that they suspected that there was alleged wrong doing?
A: As you now pointed out that an auditor has been assigned a particular assignment to verify the wrongdoing. Now, the issue is, the assignment was given and in that assignment due diligence was expected from a professional they could not unearth the scam. I believe that there are not enough evidence that due diligence have been applied.