MSKA & Associates, the audit firm of Byju’s, has told the company’s board that it is resigning as statutory auditor with immediate effect, according to two people familiar with the matter.
This will have an impact on the firm’s audit of fiscal year 23 accounts. It had been appointed for a five-year tenure ending in FY27.
According to the persons listed above, the auditor also mentioned in his resignation letter a questionable transaction involving Dubai-based reseller More Ideas General Trading LLC that was reported to the Ministry of Corporate Affairs (MCA) on September 2. This involves recovering approximately ₹1,400 crore from the reseller. ET reported on February 19 that investors in Byju’s had raised concerns about the management’s failure to recoup dues in this particular transaction.
Byju’s and MSKA & Associates have not responded to enquiries as of press time.
MSKA apparently decided to resign due to management’s unwillingness to cooperate, the difficulties in obtaining the numbers and facts needed to conduct a proper investigation, and the discovery of a matter that had to be reported to MCA under the Companies Act.
MSKA & Associates is the second audit firm to leave Byju’s in a little over two years, following Deloitte Haskins & Sells on June 23, 2023. On August 2, 2023, the Byju board appointed MSKA & Associates to cover the resulting casual vacancy.
The firm was re-appointed as the company’s statutory auditor at the AGM on December 20, 2023, for a five-year term spanning FY23 to FY27.
MSKA noted a “material uncertainty” over the company’s status as a “going concern” in its FY22 audit report. According to the sources, the audit company struggled to get the essential books of accounts, information, and audit proof between January and June of this year, despite several tries and reminders.
The audit company requested the board’s involvement, but was unsuccessful, leaving it unable to complete the FY23 audit.
According to those indicated above, a major worry was a lack of vital information about the difficulty to recover dues from More Ideas General Trading LLC in Dubai, as well as the failure to begin a forensic assessment of this transaction despite repeated requests.
Auditors have repeatedly cautioned about the management’s failure to recover around ₹1,400 crore from the Dubai-based reseller while paying ₹300 crore in sales commissions, despite the debt-laden edtech firm facing a serious money crisis.
As a result, in accordance with its duties, the statutory auditor was required to initiate proceedings under Section 143(12) of the Companies Act of 2013, and notify the board in mid-July. Section 143 (12) requires an auditor to notify the Registrar of Companies (RoC) if it discovers suspected fraud.
However, because the auditor had not received a response from management or the board by the end of August, it reported the suspicious transaction to the central government, as required.
According to those familiar with the situation, the auditor finally filed Form ADT-3 with the RoC on September 6. Form ADT-3 is a mandatory report that must be submitted when an auditor resigns before the end of their term.
According to the sources described above, a lack of information caused considerable delays, preventing the financial statement for FY23 from being finalised and given to shareholders by the September 30, 2023, date under the Companies Act of 2013.
The auditors are also said to have notified the board that, due to continuing litigation with lenders, the company had lost control of several subsidiaries, and management no longer had access to their books of accounts, complicating the compilation of consolidated financial statements.
After MSKA took over the audit in August 2023, Byju’s parent firm, Think & Learn Pvt Ltd, declared a consolidated loss of Rs 8,245 crore on an operating revenue of Rs 5,014 crore for the fiscal year ending March 31, 2022. This regulatory file, made in January 2024, followed several missed deadlines during the previous year.
