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New Delhi, Aug 17 The National Financial Reporting Authority (NFRA) has found that IL&FS Financial Services (IFIN) reported inflated profits for 2017-18, and BSR & Associates LLP, the statutory auditor, did not obtain appropriate audit evidence to support the numbers reported in the financial statements.In its Audit Quality Review Report (AQRR), the NFRA laid down the audit lapses and violations of the KPMG arm as a statutory auditor of IFIN.The report noted that IFIN's reported profit before tax for 2017-18 was Rs 201.96 crore, and this was arrived at by not providing major financial numbers including "reversal of general contingency provision" of Rs 225 crore, "unjustified valuation of a derivative asset" of Rs 184 crore and "non-provision for impairment in the value of investments" of Rs 200.20 crore."In all the above cases, BSR has not obtained sufficient, appropriate audit evidence, as required by the SAs, to support the specific numbers finally reported in the Financial Statements. The total of the 3 items mentioned above alone have led to an inflation of the profits of IFIN by Rs 609 crore."Further, the review found that IFIN was not compliant with the minimum Net Owned Funds (NOF) and Capital to Risk Assets Ratio (CRAR) prescribed for an NBFC of its type, as of March 31, 2018. These numbers were "heavily" negative, against a minimum positive requirement and this non-compliance had continued since some time, as per the report.It noted that the financial statements of an NBFC have to disclose these numbers. However, IFIN's management contested the RBI's computation method and decided to show positive numbers nevertheless, according to its own definition.The report said that BSR was convinced that the IFIN management was clearly in the wrong, but the auditors went along with the wrong numbers disclosed in the Financial Statements, contenting themselves with only an Emphasis of Matter (EOM) paragraph in the auditor's report. Such EOM is justified only when the disclosure requirements, as per the standards of auditing, are fulfilled."Thus, BSR failed to highlight a material misstatement of major magnitude and fundamental importance," the NFRA report said.The authority also found that BSR was illegally appointed the statutory auditor of IFIN for 2017-18.The report noted that the firm was not eligible to be appointed as an auditor due to violation of Section 141(3)(e) for subsisting business relationships on the date of appointment, and Section 141(3)(i) for provision of non-audit services directly or indirectly, of the Companies Act, 2013.BSR & Associates and Deloitte Haskins and Sells have been under the lens in the alleged IFIN fraud case. In March this year, the National Company Law Appellate Tribunal (NCLAT) had dismissed the pleas of both audit firms, along with independent directors, to challenge their impleadment in the alleged fraud.( With inputs from IANS )

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