Top auditors divided on their responsibility to detect Gensol-type frauds; ICAI yet to order probe
April 19, 2025
Top auditors differ on whether Gensol fraud signals audit failure, as SEBI orders forensic audit. ICAI yet to begin probe. Experts highlight gaps in fund use checks, RPT scrutiny, and call for stricter auditing standards like ISA 600 for better fraud detection.
Even as the Securities and Exchange Board of India (SEBI) has ordered a forensic audit against Gensol Engineering on alleged fund diversions by promoters, top auditors are divided on whether this is a case of “serious auditing lapse”.
Following the SEBI’s interim report, the internal audit committee of Gensol and its statutory auditors came under fire, as some investors believed that they were not able to detect alleged discrepancies in Gensol’s books, particularly related to fund diversion and loan misappropriation.
“The audit committee is required to ensure that the funds raised are used for intended purposes. Auditors are also required to verify and report, under Companies (Auditor’s Report) Order, about the end utilisation of funds. The recent norms of SEBI on related party transactions (RPTs) as well as the proposed standard on group audit recommended by NFRA will tighten the discipline and check such transactions with fraudulent intent,” said Ashok Haldia, former secretary at the Institute of Chartered Accountants of India (ICAI).
“I don’t think we can blame auditors (internal and external) in this case. The management often likes to hide issues from the auditors. This is especially relevant in this case since the promoters already falsified the documents to show timely repayment of debt,” said the audit head at a large auditing firm.
As per Gensol‘s 2023-24 annual report, the company had said that it had appointed a renowned audit firm – Talati & Talati LLP – to closely monitor adequate internal financial controls with reference to its financial statements. “During the year, such controls were evaluated and no reportable deficiency in the design or the operation of such controls were observed,” the report said.
However, ICAI sources said that its FRRB (Financial Reporting Review Board) committee has not initiated any investigation on the Gensol matter till now. The FRRB committee is equipped to probe Gensol when required. FRRB usually conducts over 100 investigations in a year on such matters.
Experts said that RPTs are a common thread in cases of frauds. In all such instances deceipt is often perpetrated by diverting funds through quick layering of transactions. “The adoption of international standard of auditing 600 (ISA 600) (in India) on group audits could streamline the auditor’s responsibility and accountability with regard to the diversion of funds,” said an auditing expert.
[The Financial Express]
