Byju’s CFO was tasked with changing auditor amid deteriorating ties with Deloitte, sources say

Byju’s is also yet to close a much-needed financing round that will help the company tide over an immediate liquidity crunch.

Byju's recently-appointed group CFO (Chief Financial Officer) Ajay Goel was entrusted with the task of finding a new auditor for the world's most-valued edtech startup, which has faced intense scrutiny over the past 15 months or so.

The move meant that Ajay Goel, who joined Byju’s in April this year from Anil Agarwal’s Vedanta Group, would find a replacement for Deloitte, which was appointed as Byju’s statutory auditor in FY16 for a period of five years.

On June 22, 2023, Deloitte, one of the biggest globally, tendered its resignation, citing a “long delay” by the company in furnishing its FY22 (2021-22) financials. Moreover, Deloitte also said that it did not receive any communication on the resolution of the audit report modifications in respect of the year ended March 31, 2021.

While an auditor stepping down is a red flag for a company, Deloitte’s resignation was in the works after relations broke down between the big four audit giant and Byju’s.

At least three people familiar with the development said that both the company and some of its investors felt Deloitte did not play fair with the company.

“They (Deloitte) were auditors for five years, signed off on their accounts every year. But they changed the revenue recognition practice overnight for the firm last year,” one of the sources cited above said.

A second person said Deloitte billed the company 20 percent more man hours last year. According to sources, the Byju’s auditor had to put in around 3,000-3,500 extra hours of work to make the revisions in its revenue recognition for FY21. Deloitte charged Byju’s Rs 4.5 crore as statutory audit fees in FY21, up from Rs 73 lakh in FY20, as per regulatory filings.

An audit expert said the extra hours, and the jump in audit fees, was only because Byju’s changed its business model during the pandemic years, when it made several acquisitions.

Deloitte had also delayed signing off on Byju’s financials after it stressed on weak internal controls and had found other discrepancies at the edtech startup.

A third person said there was no love lost between the two. “Byju (the founder) wanted to wrap up the TLB (term loan B) negotiation process first before commencing the audit.”

Sources say Byju’s is expected to commence the audit process next week, for its FY22 (2021-22) earnings.

Byju’s and Deloitte did not immediately reply to Moneycontrol’s emails seeking details. The story will be updated if they do.

Casting a wide net

Goel had engaged with most of the top six audit firms in the world over the past months, sources told Moneycontrol. “Goel’s task was to get Byju’s next auditor. That meant either reappointing Deloitte or even finding a new firm. He had engaged with not just the big four, but spoke with the top six audit firms,” one of the people cited above said.

“Given Byju’s time restrictions, it was leaning towards BDO,” the person added. In an official announcement on June 22, Byju’s confirmed that it had appointed BDO (MSKA & Associates) for a period of five years.

BDO will audit the accounts of all three--Think & Learn (consolidated and standalone), which operates Byju’s, WhiteHat Jr, one of the many acquisitions the company made and Aakash Educational Services, which is preparing for a $1 billion IPO.

“We have chosen BDO as our auditors with great confidence following a well-structured selection process. Their exceptional capabilities and expertise in providing audit services to globally diversified large-scale companies make them the perfect fit for our organization. We are excited to collaborate with BDO to uphold the highest standards of financial scrutiny and accountability," Ajay Goel said in an official statement.

BDO is among the top six audit firms in the world, along with Deloitte, PwC, KPMG, EY and Grant Thornton.

“Now that BDO has come onboard, the company is likely to begin audit work for FY22 as early as next week,” the person quoted above told Moneycontrol.

Those remarks come despite Deloitte saying that it received no communication from Byju’s.

“...We have also not received any communication on the resolution of the audit report modifications in respect of the year ended March 31, 2021, and the status of audit readiness of the financial statements and the underlying books and records for the year ended March 31, 2022 and we have not been able to commence the audit as on date," Deloitte’s resignation letter read.

"As a result, there will be a significant impact on our ability to plan, design, perform and complete the audit in accordance with the applicable auditing standards. In view of the aforesaid, we are tendering our resignation as statutory auditors of the Company with immediate effect," the letter added.

But according to media reports, Byju’s, in the ongoing court proceedings, had said that the company’s FY22 audit is underway.

Deloitte's resignation comes at a time when three board members of Byju's– GV Ravishankar of Sequoia Capital (now Peak XV Partners), Russel Dreisenstock of Prosus and Vivian Wu of Chan Zuckerberg, also tendered their resignations from the company's board due to differences with founder Byju Raveendran on key operational issues.

The resignations, of the three board members and Deloitte, has become the latest setback for India’s most-valued startup, which is currently in a tiff with its lenders over a $1.2 billion term loan B it had raised in November 2021.

Both, lenders and Byju’s, have sued each other in the US as tensions continue to escalate between the two parties. The three board members who resigned were not happy with the way founder Byju Raveendran was handling the lender issue, Moneycontrol reported on June 22.

Byju’s is also yet to close a much-needed financing round that will help the company tide over an immediate liquidity crunch. Meanwhile CNBC-TV18 reported that the Ministry of Corporate Affairs (MCA) has opened a probe into the company.