Deloitte is one of the world’s largest accounting and consulting firms, with a global network of over 300,000 professionals in more than 150 countries.
However, in recent years, the firm has been involved in several scandals and controversies that have tarnished its reputation and raised questions about its audit quality, independence and integrity.
Deloitte is once again in the news, not for good reasons. It has resigned as auditor of the Adani Group’s port company. The auditor wanted a wider remit over other firms in the conglomerate.
In a statement, Adani Ports and Special Economic Zone (APSEZ) confirmed Deloitte’s resignation and the appointment of MSKA & Associates as the company’s new auditor.
Deloitte has been the auditor of APSEZ since 2017. In July 2022, it was given another five-year term.
In this essay, I will examine some of the cases where Deloitte has been accused of negligence, misconduct or fraud in its audit engagements, and how these cases reflect the systemic problems and challenges facing the auditing profession.
One of the most prominent cases where Deloitte has faced scrutiny and criticism is its role in the collapse of Infrastructure Leasing & Financial Services (IL&FS), a major Indian conglomerate that defaulted on its debt obligations in 2018, triggering a financial crisis in the country. Deloitte was one of the auditors of IL&FS and its subsidiaries, including IL&FS Financial Services (IFIN), which was found to have inflated its profits, understated its bad loans, falsified its accounts and siphoned off funds to related parties. The Serious Fraud Investigation Office (SFIO) of India alleged that Deloitte failed to report the irregularities and red flags in IFIN’s books, despite having access to internal documents and whistle-blower complaints. The SFIO also accused Deloitte of colluding with IFIN’s management to conceal the fraud and mislead the regulators and investors.
As a result of the SFIO’s investigation, Deloitte may face a ban from auditing in India for up to five years, as well as criminal charges and civil lawsuits. The National Financial Reporting Authority (NFRA), an independent audit regulator in India, has also initiated disciplinary proceedings against Deloitte and its former CEO Udayan Sen, who was the engagement partner for IFIN’s audit for 2017-18. The NFRA has debarred Sen from conducting any audit for seven years and imposed a penalty of Rs 25 lakh for professional misconduct. The NFRA has also found that Deloitte violated several auditing standards and ethical principles in its audit of IFIN, such as independence, objectivity, due diligence, professional skepticism, quality control and documentation.
The IL&FS case is not an isolated incident for Deloitte in India. The firm has also been accused of negligence or fraud in its audits of other companies, such as DHFL, Jet Airways, Fortis Healthcare and Reliance Communications. These cases have exposed the loopholes and weaknesses in the audit system in India, such as the lack of oversight, accountability and enforcement by the regulators; the conflict of interest and collusion between the auditors and the audited entities; the pressure and influence exerted by the clients on the auditors; and the low audit fees and high competition among the audit firms.
Deloitte’s troubles are not limited to India. The firm has also faced regulatory actions, legal challenges and reputational damages in other countries for its audit failures or misconducts. For example:
- In the UK, Deloitte has been fined £4.2 million by the Financial Reporting Council (FRC) for its audit of Serco’s Geografix division during the outsourcing firm’s electronic tagging scandal. Serco had overcharged the government for tagging offenders who were dead, in prison or never tagged at all. The FRC found that Deloitte failed to obtain sufficient audit evidence, exercise professional skepticism and challenge Serco’s accounting practices.
- In Australia, Deloitte has admitted to misuse confidential government information on nine occasions last financial year, widening a scandal that has engulfed another big four firm PwC. Deloitte disclosed the breach as part of a Senate inquiry into the role of consultants in government contracts. The firm has also faced criticism for its conflicts of interest and lack of independence in its audits of companies such as AMP, Rio Tinto and Virgin Australia.
- In South Africa, Deloitte has been sued by Eskom, a state-owned power utility company, for R207 million for alleged overcharging and irregularities in its consulting contracts. Deloitte has also been implicated in the corruption scandal involving Steinhoff International Holdings NV, a retail giant that collapsed after revealing accounting irregularities. Deloitte was Steinhoff’s auditor for 18 years before resigning in 2017.
These cases show that Deloitte has repeatedly failed to live up to the high ethical and professional standards expected of big global auditing firms. The firm has not only compromised its own credibility and reputation, but also undermined the public trust and confidence in the auditing profession as a whole. The firm needs to take urgent and serious measures to address the root causes of its audit failures, such as improving its audit quality, enhancing its independence and objectivity, strengthening its internal controls and governance, and ensuring its accountability and transparency. The firm also needs to cooperate with the regulators and authorities in their investigations and actions and accept the consequences of its actions. The firm should also learn from its mistakes and implement the necessary changes and reforms to restore its reputation and regain the trust of its stakeholders.
