Another setback for Byju’s; Auditor BDO Resigns

Byju’s audit firm MSKA Associates, an affiliate of BDO International, has resigned, citing serious concerns about the company’s financial and governance practices. This development follows the resignation of Byju’s previous auditor, Deloitte, just over a year ago.

Reasons for BDO’s departure

BDO's resignation letter, submitted on September 2, 2024, highlights several critical issues with Byju’s. Key among them are delays in financial reporting and a perceived lack of cooperation from the company's management. The audit firm also raised alarms about the recovery of unpaid dues from a Dubai-based entity, More Ideas General Trading LLC, amounting to approximately Rs 1,400 crore.

Additional concerns noted by BDO include ongoing legal disputes, liquidation proceedings initiated by creditors, and allegations of mismanagement from minority shareholders. The auditor also pointed out that Byju’s failed to provide essential documents, such as notices for extraordinary general meetings (EGMs) and updates on insolvency proceedings.

Byju’s response to BDO’s resignation

In response to BDO’s resignation, Byju’s issued an official statement, asserting that the real reason behind the auditor's departure was linked to unethical practices. The company claimed it had complied with all of BDO’s requests except those deemed legally and ethically questionable. Byju’s alleged that BDO had suggested backdating reports, an action the company refused to take. Byju’s maintains that this refusal led to BDO's resignation, and the company has recordings of calls where BDO representatives proposed this illegal action.

What is backdating a document?

Backdating involves marking a document—such as a check, contract, or another legally binding paper—with a date that precedes the actual date of creation. This practice is generally prohibited and can be deemed illegal or fraudulent, depending on the circumstances. However, there are instances where backdating may be permissible if all involved parties consent to it in writing.

Background and recent challenges

BDO was appointed as Byju’s auditor in August 2023 following Deloitte’s resignation. BDO was reappointed during Byju’s Annual General Meeting in December 2023, with a term scheduled to last from FY23 to FY27.
In recent months, Byju’s has faced escalating challenges, including a Supreme Court ruling permitting insolvency proceedings against the company. On July 16, 2024, Byju’s entered insolvency proceedings due to a legal dispute with the Board of Control for Cricket in India (BCCI), resulting in the suspension of the company’s Board.

Following the insolvency proceedings, BDO sought clarifications from Byju’s regarding historical transactions with a Middle-Eastern partner. The situation has further complicated Byju’s already troubled financial and governance landscape.