PwC Resigns As Statutory Auditor For Reliance Capital, Reliance Home Finance
PwC said that it did not receive satisfactory response to its queries to Reliance Capital and Reliance Home Finance.
Price Waterhouse & Co Chartered Accountants LLP resigned as one of the statutory auditors of Reliance Capital Ltd. and Reliance Home Finance Ltd. citing certain “observations or transactions” in its assessment.
If the observations aren’t resolved satisfactorily, according to PwC, it might be significant or material to the companies’ financial results. The audit firm—which currently isn’t a statutory auditor to any other Anil Ambani-led group company—also said the firms failed to convene audit committee meetings within the expected time, preventing it from performing its duties and exercising independent judgement in preparing reports to members of the companies. It has threatened to initiate appropriate legal proceedings against the firms.
Both Reliance Capital and Reliance Home Finance disagreed.
They said that they had duly responded to the various queries and letters of the audit firm, and “validly convened” a meeting of the audit committee on June 12, i.e., today in response to PwC’s letter dated May 14. The exchange clarification was filed by Reliance Capital and Reliance Home Finance on June 12 at 00:45 hours.
The companies also said they expected PwC to participate in the meeting of the audit committee and not resign on the evening thereof. We had duly furnished all requisite and satisfactory details as required by PwC, including certification and confirmations of the transactions in question on multiple occasions, the firms said.
Pathak H.D. & Associates will continue as the sole statutory auditor and will ensure that PwC’s observations are fully examined, the firms said.
Big 4 Audit Firms In Big Trouble
The two Reliance Group companies said they may initiate legal proceedings if required, to protect the interests of all stakeholders.
This threat of legal action by the companies is uncalled for, Gautam Nayak, partner at CNK & Associates, told BloombergQuint, pointing out that the audit firms were merely doing their job.
As for the audit committee meeting, the communication is always through the company so it must ensure a free flow of information between the auditors and the audit committee, Nayak said. “In this case it appears it wasn’t happening which is a matter of concern because that clearly shows the company had something they didn’t want the audit committee to get in touch with the auditors on.”
This comes on the back of a June 7 report by Risk Event-Driven and Distressed Intelligence, which found “some unusual lending arrangements within the Reliance Capital Group” that employed “box companies” to allow Ambani’s group firms to receive funds from the financier, without triggering regulatory disclosures. The “alarming” rise in such loans could snowball into another liquidity crisis in the struggling shadow banking sector, the report said.
In a conference call yesterday, Ambani attempted to reassure investors that the group is committed to repaying all its debts.
Shares of Reliance Capital have tumbled 59.2 percent this year, compared with an 11.2 percent gain in the benchmark S&P BSE Sensex index. Reliance Home Finance’s shares declined 70 percent during the same period.
Watch the interaction with Gautam Nayak here: