Reebok Fraud Case: SFIO, ICAI to probe Auditors’ Role

Posted: 16/06/2012 in News

Shruti Choudhury, New Delhi

The Government and the country’s accounting regulator will initiate separate probes into the role of Reebok India’s auditors, widening the scope of investigation in the alleged Rs.870-crore fraud.

“The Serious Fraud Investigation Office (SFIO) will look into the role of auditors as it probes all angles of the case,” said corporate affairs minister Veerappa Moily.

The corporate affairs ministry has already tasked SFIO, the country’s fraud detection agency, with the responsibility of scrutinising Reebok India’s accounts and probing the alleged irregularities in its books.

Institute of Chartered Accountants of India (ICAI), the body that regulates auditors and accountants in the country, said it will independently probe whether there were instances of professional negligence by chartered accountants.

Audit firm N Narasimhan & Co is the auditor of Reebok India. A senior official of the firm did not respond to ET’s SMSes and phone calls on the issue.

“We are yet to initiate an investigation but prima facie there seems to be critical lapses in the way the company’s auditors functioned,” said ICAI president, Jaideep N Shah. “Without the knowledge of auditors, both internal and statutory, such huge misappropriation of funds is impossible,” he said.

While the institute has written to Reebok India for more clarity regarding negligence by professional chartered accountants and the charges leveled against the ex-top officials, they haven’t yet received any communication from the sports goods maker.

“Reebok India needs to provide details of their auditors. Being a CA institute, we will focus on the roles played by any professional in the alleged scams,” Shah added.

Last month, the Adidas group, the world’s second-largest sporting goods company, had announced commercial irregularities of 870 crore in Reebok’s India business. Last week, the company filed an FIR with the Gurgaon police station accusing former CEO Subhinder Singh Prem and COO Vishnu Bhagat, accusing them of misappropriation of funds, inventory diversion, and fictitious inflation of sales revenue.

While the Haryana police has issued a look out notice against the duo, a person aware of the development said they have moved the Chandigarh High Court for anticipatory bail, after a local Gurgaon court rejected their anticipatory bail pleas.

According to a media report, the parent company, Adidas AG had hired the forensics team of KPMG to probe into the matter in 2010, in a project codenamed “project diamond.” But KPMG gave a clean chit to the two dismissed executives, claimed the report.

“We cannot investigate the probe launched by KPMG as forensics is a consulting assignment and not an auditing process. KPMG is not a registered auditor with ICAI and cannot conduct any auditing roles in India,” said Shah.

A KPMG official declined to comment on the forensic audit. He said the firm was the global auditor of Adidas AG, but had no role to play in the auditing of the Indian arm of the German sports goods maker.

The ministry has accused Adidas of not cooperating with its inquiry and of not submitting some important documents.

But the Adidas India spokesman said the company was cooperating with the authorities in their investigation. “Please understand that we cannot provide any further details since the matter now rests with the Indian law enforcement authorities,” he said.

Source: The Economic Times.

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