Byju’s says auditors resigned due to initiation of insolvency proceedings, outlines ‘serious concerns’ | Mint

Byju’s has in a statement on September 7, claimed that its auditor BDO Global resigned after the edtech startup refused to provide documents ahead of the insolvency proceedings.

Byju’s alleged “serious concerns about unethical requests made by audit firm, BDO and its failure to adhere to proper procedures”.

‘Unethical Requests, Manipulative Tactics’

The company said it complied with all of BDO’s request except those “that would require crossing ethical and legal boundaries”, alleging that the auditor made “unethical requests” and undertook “manipulative tactics”.

“The real reason for BDO’s resignation is Byju’s firm refusal to backdate its reports, while BDO went to the extent of recommending a firm that could facilitate such an illegal activity. Multiple call recordings exist, where BDO representatives explicitly suggest backdating these documents, which Byju’s refused to do. Byju’s strongly believes that this is the main reason for their resignation,” the statement read.

‘Lack of Communication Suspicious’

Byju’s has also claimed that BDO sent an email on July 17, for clarifications about its historical transactions with a partner in the Middle East, but only marked the suspended company board on the request.

The board was suspended on July 16, 2024 after Byju’s legal dispute with the Board of Control for Cricket in India (BCCI) led to initiative of insolvency proceedings. The process triggered the appointment of an Insolvency Resolution Professional (IRP), to take control of the startup.

Byju’s alleges that in the July 17 email BDO “threatened to resign” if the requested clarifications were not provided in 45 days, but failed to mark the IRP in the email.

“BDO eventually resigned after the 45-day window expired, citing the suspended board’s failure to provide the requested clarifications. However, surprisingly, the BDO failed to appreciate that for most of that 45-day period, the IRP was in control of Byju’s and only the IRP could provide the answers they were seeking,” the company said.

It added that in the first meeting of the Committee of Creditors (CoC) on September 3, the IRP noted that he had “repeatedly reached out to BDO for clarification”, but received no response. “BDO’s lack of communication with the IRP is surprising and suspicious,” Byju’s added.

Why Was The Audit Sought?

Byju’s in the statement said that the suspended Board and management of Byju’s took “proactive step of arranging a forensic audit, fully transparent and supervised by BDO” before their email on July 17.

However, this was incomplete due to the initiation of the insolvency proceedings and thus “failure to complete the forensic therefore cannot be attributed to the suspended Board”.

The company also stated that these foreign transactions were “greenlighted” in their FY22 virtual board meeting, resulting in an audit report which was “clean”. They added that a BDO senior partner confirmed on video that they “found no evidence of fraud or malpractice in these transactions after conducting thorough due diligence”.

“While we hope that the insolvency admission order will be vacated by the Supreme Court very soon, until such time as the Resolution Professional (RP) is in control of Byju’s, we wholeheartedly welcome the RP taking the lead in conducting a forensic audit into this specific matter. We are prepared to extend every possible support to facilitate the full audit process,” it added.

BDO Resigns As Byju’s Auditor

On September 6, Tech Crunch reported that BDO subsidiary MSKA became the second Byju’s auditor after Deloitte to resign from the troubled startup.

The report said MSKA’s resignation letter highlighted multiple issues, such as significant delays in financial reporting, inadequate management support, and concerns over the company’s ability to recover substantial dues from a Dubai-based entity.

Deloitte, Byju’s previous auditor, and the startup’s key board members resigned in 2023, citing governance issues at the firm.

MSKA was appointed for a term of five years from August 2023, the report added. The auditor, in its resignation, said that it has filed Form ADT 4, suggesting potential fraud or illegal activities within Byju’s.

Byju Raveendran Alleges ‘Blackmail Tactics’, says report

Byju’s founder-CEO Byju Raveendran has accused BDO of alleged blackmail tactics, Moneycontrol reported, citing an email from the executive to the auditor sent late on September 6.

“As you are well aware, Byju’s has complied with every request made by BDO, except those that would require us to cross the lines of ethics and legality,” Raveendran said, it reported.

Raveendran’s email also stated that the BDO partner acknowledged the due diligence and that there was no evidence of fraud. He also said that the date of the BDO request email was just a day after the insolvency proceedings began.

“While Byju’s has been going through financial difficulties, the company has still managed to make part payments toward the fees due to BDO. This indicates our willingness to work together through difficult times. However, it seems the true reason for BDO’s resignation is the management’s firm refusal to entertain your request to back-date documents and filings, which are illegal. We have multiple proofs in the form of electronic recordings where BDO’S senior partners are explicitly asking our teams to furnish multiple backdated reports. In fact, I have come to know that your senior partner recommended the valuation firm themselves to facilitate this illegal activity…There are several aspects of your firm’s operations, and indeed, the nature of your resignation, that remain suspicious,” Raveendran said in his email, as per the MC report.