MSKA & Associates is the audit affiliate of the accounting giant BDO. They were appointed statutory auditors for five years from financial years 2019-20 to 2024-25, however, the RBI circular last year curtailed the tenure of the bank and non-banks auditors to a maximum of three years. Also, the resignation follows after the auditor refused to sign the accounts of PFS for Q3FY22 and the first nine months of FY22; this was amid governance issues raised by the company’s former independent directors, and also as the lender is undergoing a forensic audit in view of this, which is yet to be completed.
“In accordance with the applicable framework laid down under Standard on Quality Control (SQC) 1 “Quality control for Firms that Perform Audit and Reviews of Historical Financial Information, and Other Assurance and Related Service Engagements”, our Firm has laid down policies and procedures to evaluate “client/ engagement continuation” on regular basis. The Firm has accordingly re-evaluated the criterion for our continuance as statutory auditors of the Company for the quarter ending June 30, 2022, and regrettably, the necessary conditions could not be met,” MSKA said in its resignation letter.
“We would also like to highlight the following major facts and circumstances, including certain recent developments in the Company, as reasons for our proposed resignation: (1) Matters explained in our Disclaimer of Conclusion for the quarter and nine-months ended December 31, 2021, vide our report dated May 27, 2022. (2)Resignation of three ex-Independent Directors on the Board; (3) Significant time expended and costs incurred in the completion of limited review for the quarter ended December 31, 2021 (Q3) and the anticipated costs for the ongoing audit for the year ended March 31, 2022,” MSKA further said in its letter.
Last week, PFS’ company secretary, a key managerial personnel, also resigned amid governance issues.
PFS is facing governance concerns relating to the appointment of Director Finance and CFO; the company’s all three former independent directors–Kamlesh Vikamsey, Santosh Nayar, and Thomas Mathew–had resigned en masse earlier on January 19. They had alleged that the company’s MD Pawan Singh and Board Chairman Rajib Kumar Mishra took a unilateral decision to put the joining of CFO and Director Ratnesh Kumar on hold without informing the Board. PFS’ management is also charged with hiding the forensic audit report on the NSL Nagapatnam Power and Infratech Private Ltd loan account for more than two years. PFS has refuted these allegations and said that these charges contain “various inaccuracies”.
‘PFS under regulatory radar’
PFS is under the increased regulatory watch following the resignation of all its independent directors. It is facing increased scrutiny from the corporate affairs ministry, non-bank lenders’ regulator RBI as well as the markets watchdog, Securities and Exchange Board of India (SEBI).
In March-end, PFS went on to appoint four new independent directors, all from its parent company’s Board, however, the SEBI thereafter directed the lender not to change the composition of the Board without completion of the forensic audit report. PFS had in April appointed CNK & Associates as forensic auditors to look into the IDs’ allegations.
PFS is a public listed entity. While it’s not a government-owned entity but its parent company is PTC India which owns a 65% stake, and has state-run companies NTPC, National HydroElectic Power Corporation, Powergrid Corporation of India, and Power Finance Corporation as its promoters; they each have 4% stake in PTC India, aggregating to 16% shareholding.
Shares of PFS were trading down 0.73% on the BSE at Rs 13.55 apiece. PFS stock has fallen by about 35% following the IDs’ resignation in January.