Sebi may order forensic audit of Infosys over allegations: report

The market regulator had initiated a probe into allegations of financial impropriety at Infosys, following whistleblower complaints that emerged last year.

Sebi’s decision comes after the internal audit committee of Infosys on 10 January concluded that the charges made by the whistleblowers were substantially without merit. The findings of the internal audit were shared with the regulator.

“The findings that it has come to is immaterial to Sebi’s probe. The regulator’s investigation so far has in fact warranted a deeper analysis. Sebi is in the process of appointing a forensic auditor for a thorough examination of the allegations of unethical practices," the report quoted one of the sources as saying.

The investigations follow a complaint by an anonymous whistleblowers to the company’s board alleging that chief executive Salil Parekh and the company’s chief financial officer indulged in “unethical practices" to boost revenue and profits. The whistleblower complaint, which was also sent to the US Securities and Exchange Commission on 30 September, became public on 21 October. Sebi took suo motu cognizance of the issue after the complaint became public.

Infosys CEO Salil Parekh, during a press conference to announce the company's third quarter results in Bengaluru, however, said an internal audit cleared Infosys of anomalies such as visa costs and large deals.

On 8 November, Sebi chairman Ajay Tyagi had indicated that its probe was independent of statements made by Infosys.

“The investors, if they want, can take comfort from Infosys’s statement, but our probe is still on. This is all I can tell you," Tyagi said, adding that people wishing to check Infosys’s financial figures should “ask God". This came after Infosys chairman Nandan Nilekani defended the sanctity of the company’s numbers, saying even “god can’t change the numbers".

Sebi is also investigating a huge build-up of derivatives positions in the stock before allegations of accounting malpractices were made public.

Exchange data showed that huge put positions, or the option to sell shares at an agreed price on or before a particular date, were accumulated in the November series contracts of Infosys at a strike price of Rs740.

“In the prelim analysis, the regulator has found that these positions were fully hedged, making it difficult to pinpoint whether there was any insider trading," the report citing sources said.

Subsequently, Infosys told stock exchanges in October that it had referred the complaint to its audit committee.

Excerpts of the findings of the audit committee, which was assisted by law firm Shardul Amarchand Mangaldas and Co., and PricewaterhouseCoopers Pvt. Ltd, were also made public along with the company’s fiscal third quarter earnings.

The committee gave a clean chit to the company on anomalies such as visa costs, large deals, reversal of certain provisions and non-disclosure of key information.

“The allegations regarding the visa costs are unsubstantiated. The costs incurred towards visas by the company are appropriately accounted for," the audit committee report said. “The allegations regarding large deal approvals are unsubstantiated. Large deals under the investigation team’s review were approved by the necessary stakeholders. In the case of one large deal, a post-facto approval was sought. The joint ventures were approved by the board and the audit committee. No evidence was found suggesting CEO’s involvement in bypassing the deal approval process or issuing any instructions in this concluded that no restatement of previously announced financial statements or other published financial information is warranted."

In the December quarter, Infosys reported its profit rose 23.5 per cent to Rs4,457 crore from a year earlier. Revenue rose 7.9 per cent to Rs23,092 crore. It also revised upwards its FY20 revenue outlook to 10-10.5% growth in constant currency.