What is the impact of KPMG Ban on Indian companies

This story elaborates the impact of probable ban of five years on KPMG

Impact of KPMG Ban in IL&FS Case

Indian government has moved to National Company Law Tribunal to seek a ban on two multi-national audit companies. Government seeks to ban BSR, under Section 140 of the Companies Act for five years.

It all started wit Infrastructure Leasing Financial Services (IL&FS) defaulting on a few payments. It failed to service its commercial papers on due date. The company’s default spelled out trouble for its investors. Government took over the debt laden IL&FS and looked into the financials. The group has a debt of more than 910 billion rupees.

India’s Serious Fraud Investigation Office (SFIO) filed fraud charges against the auditors.Investigations in IL&Fs lead to lacunae in audits. Deloitte audited IFIN from 2008-09 to 2017-18 and BSR started auditing it from 2017-18. Both Deloitte and BSR audited IL&FS Financial Services in 2017-18.

KPMG Network firms

BSR & Associates along with BSR & Co represent KPMG Network in India. These two firms are primarily involved in Audit practice. However, presence of KPMG is not limited to only Audit Practice. They have other companies in group such as

  • KPMG India
  • KPMG Advisory Services
  • KPMG Global Services Management
  • KPMG Resource Center

In the list created by corporate affairs ministry, name of Sampath Ganesh was mentioned prominently. He is the partner of BSR.

KPMG Ban and IL&FS

Audit of IFIN was performed by BSR for 2017-2018. KPMG Network firms were performing audit work for least 8 IL&FS group companies.

  1. IL & FS Investment Managers Limited
  2. Iiml Asset Advisors Limited
  3. IL& FS Asian Infrastructure Managers Limited
  4. IL&FS Engineering And Construction Company Limited
  5. IL&FS Financial Services Limited
  6. IL&FS Securities Services Limited
  7. IL&FS Urban Infrastructure Managers Limited
  8. ISSL Settlement & Transaction Services Limited

According to the government findings, audit firm has failed in performing their duties as an auditor. Though Deloitte Haskins and Sells and BSR claimed that their audits were conducted in full compliance of applicable laws.

Listed Clients of KPMG

Ban on KPMG network firm will have significant impact on Indian listed companies. More than 160 Listed companies are likely to find an alternate auditor. If other Big fours are facing the ban then these listed companies will have no option but to chose Indian firms.

KPMG have dominance in finance sector and their clients include following companies from the financial services sector

  • Suryoday Small Finance Bank Limited
  • The Federal Bank Ltd
  • Rbl Bank Limited
  • Sustainable Agro-Commercial Finance Limited
  • Tata Motors Finance Solutions Limited
  • India Factoring And Finance Solutions Private Limited
  • Walton Street India Finance Private Limited
  • Staragri Finance Limited
  • Five-Star Business Finance Limited
  • Housing Development Finance Corporation Limited
  • Brick Eagle Affordable Housing Finance Limited
  • Icici Home Finance Company Limited
  • Mahindra Rural Housing Finance Limited
  • Altum Credo Home Finance Private Limited
  • Ensemble Holdings And Finance Limited

It is important to track the decisions of the various government agencies including the National Financial Reporting Authority and NCLT.