The Economic Offences Wing (EOW) of the Mumbai Police on October 4 arrested two officials of audit firm SV Ghatalia & Associates LLP, an affiliate of accountancy giant Ernst & Young (EY).
The two officials have been arrested in connection with a National Spot Exchange Limited (NSEL) scam, six years after it first came to light.
A source told Moneycontrol that the auditors did not perform due diligence while valuing commodities of the NSEL. This, the source added, was done by the officials deliberately to help the NSEL management and to show that it was in good health.
Another source at the EOW said, "EOW has been given custody of the two officials till October 7."
SV Ghatalia is an associate firm of EY. They were the statutory auditors for NSEL from 2009 to 2012.
An NSEL investor group had also moved ICAI against S V Ghatalia, a case where hearing is still on.
EY is also under the scanner in the IL&FS case where it was the statutory auditor of the crisis-hit lender's parent firm. The Serious Fraud Investigation Office (SFIO) will record the statement of the officials as well.
Responding to these developments, auditing firm SV Ghatalia & Associates LLP said in a statement, "We are surprised and dismayed at the sudden course of action taken by the Economic Offences Wing and will vigorously defend the reputation of our partners and our firm. The action by the department is for a six-year-old matter. During this period, we have always extended our full cooperation to the authorities and participated in over 50 meetings with the department."
"We reiterate that our audit of the National Spot Exchange Limited's financial statements for the years ended 31 March 2010, 2011, 2012 was in accordance with the auditing standards generally accepted in India. We were succeeded by another auditor for the financial year 2012-13. NSEL defaulted in its settlements in August 2013. We have made several written and oral submissions during the last six years about settlement of NSEL’s contracts that were outstanding as of 31 March 2012, our last year of the audit. We are confident of the quality of our audits and hopeful that our submissions and cooperation will be taken into account by the relevant authorities," the firm added.
Meanwhile, NSEL said in a statement, "We are shocked by the sudden and unwarranted arrest of two professionals associated with Ernst & Young, as it was Statutory Auditor of NSEL, and not that of the exchange platform.
Auditing of the company accounts and ‘stock-audit of an exchange’ are totally different subjects."
"Such actions by EOW raise question as to why the auditing company professionals are being arrested after over 6 years of filing of the FIR and after the same agency having filed four charge sheets," NSEL added.
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