Mumbai / New Delhi: The apex body of accountants, the Institute of Chartered Accountants of India, or Icai, has said that it is investigating Reliance Communications Ltd, (RCom) accounting practices, expanding the scrutiny on the second largest mobile phone firm after a report by government-appointed auditors pointed to discrepancies.
Closer look: A Reliance Communications outlet in Bangalore. Hemant Mishra / Mint
Jaipur-based Parakh and Co., an audit firm appointed by the department of telecommunications (DoT) to look into the telco’s books, submitted its audit report that claimed that the Anil Ambani-controlled RCom had underpaid licence and spectrum fees to the government to the tune of around Rs316 crore. The audit firm’s report also claimed that there was a difference of Rs2,915 crore in the revenue reported by RCom to the telecom regulator—on the basis of which the licence and spectrum fee payable to the government is calculated—and that reported to the stock exchanges, with the bourses being given a higher figure.
In a 14 October letter to Icai, member of Parliament Dharampal Sabharwal had alleged that “fudging of accounts” in RCom “could not have taken place without the knowledge/information and active collusion of the auditors” BSR and Co.—an audit firm that is part of KPMG—and Mumbai-based audit firm Chaturvedi Shah and Co. Responding to this letter, a week later Icai said, “...the said matter is already being processed in terms of the Chartered Accountants (Amendment) Act, 2006, and rules framed thereunder”.
A senior official at Icai confirmed this. “The Institute (Icai) follows two routes to investigate cases, formal and information-based. Since there was no formal complaint against RCom, we have initiated an action through information route, which essentially means we are investigating the matter based on the information available with Icai,” added the official, who spoke on condition of anonymity. “At this stage we cannot divulge how far the investigation has proceeded.”
RCom, which has 92 million subscribers, did not respond to an email seeking comment. Calls to Chaturvedi Shah and Co. and attempts to reach two of the firm’s partners elicited no immediate response. KPMG declined comment.
In a 25 October statement, RCom had said that it “anticipates no additional financial liability towards licence or spectrum fee, (that) special auditor’s report estimating alleged additional liability of Rs316 crore is incorrect, hopelessly biased, one-sided and prejudiced”.
DoT is yet to take a call on the report submitted by Parakh and Co. Similar reports on other telecom firms is awaited but RCom is already under censure from analysts even as it battles falling wireless revenues and a stiff tariff war that’s eroding margins.
In a 27 October report, Citigroup analysts Rahul Singh, Gaurav Malhotra and Anand Ramachandran wrote that if the audit report is correct, it “may have resulted in ‘true’ mobile Arpu (average revenue per user) and Ebitda (earnings before interest, taxes, depreciation and amortization—a measure of operating profit) being lower by 15% and 26% respectively in FY08.”
The Citi report, which reviewed RCom’s accounts for 2008-09 and the first quarter of the current fiscal year, said the divergence between revenue reported to the Telecom Regulatory Authority of India and to the stock exchanges had widened significantly. The difference increased from Rs2,570 crore (17%) in FY08 to Rs4,360 crore (25%) in FY09 and further to an “alarming” Rs1,740 crore (36%) in the first quarter of FY10, it added.
bhuma.s@livemint.com