MSKA resigns as Byju’s auditor, two years after exit from Deloitte

Bombay: KAMS & Associates, the auditing firm of the troubled educational technology startup Byju’shas informed the company’s board of directors of his resignation as CEO. auditor effective immediately, two people familiar with the development said.

This will affect the audit of the firm’s accounts for the 2023 financial year, which had been appointed for a five-year period ending in the 2027 financial year.

In the resignation letter, the auditor also cited a suspicious transaction involving a Dubai-based reseller. More general ideas Trading LLC, which had been reported to the Ministry of Corporate Affairs (MCA) on September 2, according to the people cited above. This entails the recovery of around ₹1,400 crore from the reseller. ET had reported on February 19 that Byju’s investors had raised an alert about the management’s failure to recover dues in this particular transaction.

Byju’s and MSKA & Associates had not responded to queries as of press time.

MSKA reportedly made the decision to resign due to the uncooperative attitude of the management, difficulty in obtaining the numbers and details required to conduct a proper investigation and a matter that came to light which was required to be reported to MCA under the Companies Act.

MSKA & Associates is the second audit firm to resign from Byju’s in just over two years, following Deloitte Haskins & Sells will leave on June 23, 2022. Byju’s Board of Directors had first appointed MSKA & Associates on August 2, 2023 to fill the temporary vacancy that arose as a result.

The firm was reappointed as the company’s statutory auditor at the Annual General Meeting on December 20, 2023 for a period of five years from FY23 to FY27.

‘Lack of information’
In its audit report for fiscal year 2022, MSKA had reported a “material uncertainty” about the company’s status as a “going concern.” The audit firm reportedly had difficulty obtaining the necessary accounting books, information and audit evidence, despite multiple attempts and reminders between January and June this year, the people cited said.

The auditing firm requested the board’s intervention but to no avail, leading to a situation where it was unable to complete the FY23 audit.

The people cited above said a key concern was the lack of critical information regarding the failure to recover the shares of More Ideas General Trading LLC in Dubai, as well as the failure to initiate a forensic review of this transaction, despite repeated requests.

In recent months, auditors had repeatedly warned about the management’s failure to recover about ₹1,400 crore from the Dubai-based reseller while paying ₹300 crore in sales commissions, even as the debt-laden edtech firm faced a severe fund crunch.

As a result, in accordance with his duties, the statutory auditor had to initiate proceedings under section 143(12) of the Companies Act 2013, and reported to the board in mid-July. Under section 143(12), an auditor must report to the Registrar of Companies (RoC) if he or she detects a suspected fraud.

However, as no response was received from management or the board of directors by the end of August, the auditor reported the suspicious transaction to the central government, as required.

As a final step, the auditor filed Form ADT-3 with the RoC on Sept. 6, according to people familiar with the matter. Form ADT-3 is a mandatory report that must be filed when an auditor resigns before completing his or her tenure.

The people cited above said the lack of information caused significant delays and ultimately prevented the FY23 financial statement from being completed and delivered to shareholders by the Sept. 30, 2023 deadline under the Companies Act 2013.

Byju’s was also facing investigations by government agencies such as the Enforcement Directorate (ED) and the revenue department, which could have a material impact on its business. But the management failed to keep the auditor informed about litigation notices and regulatory communications from government authorities, leaving it without the complete information required to conduct the audit, the people cited said.

The auditors also reportedly informed the board that due to ongoing litigation with lenders, the company had lost control over certain subsidiaries and management no longer had access to their books of accounts, a further hurdle to finalizing the consolidated financial statements.

After MSKA took over the audit in August 2023, Byju’s parent company Think & Learn Pvt Ltd reported a consolidated loss of Rs 8,245 crore on operating revenue of Rs 5,014 crore for the financial year ended March 31, 2022. This regulatory filing, filed in January 2024, came after multiple missed deadlines over the past year.