Accountants to be investigated over Lilliput allegations

Lilliput last year received $60 million and $26 million from Bain Capital and TPG Capital, respectively, and had filed for an IPO in Mumbai. Then the private equity firms and E&Y received an anonymous tip-off that led them to question the company's audited financial statements. Sanjeev Narula, founder, CEO and majority shareholder of Lilliput, obtained a court injunction that prevents Bain and TPG from selling their stakes or discussing the matter publicly.

S.R. Batlibio & Co., an E&Y member firm, resigned as Lilliput's external auditor at the end of September when the board rejected the financial statements for the 2011 fiscal year in response to the allegations of irregularities, The Business Standard reported. Lilliput separately hired E&Y as strategic advisor for the transactions involving Bain and TPG and the accounting firm also conducted some due diligence work at the company's request.

The potential conflict of interest falls into two areas: E&Y carrying out advisory and due diligence work on the same deal; and an E&Y member firm serving as external auditor for the company.

S. R. Batliboi is said to be under separate ownership to E&Y and only shares office space, while a Chinese Wall divides the various departments to prevent conflicts. The firm said that it met all the independence guidelines set out by the Institute of Chartered Accountants of India.

E&Y didn't comment, but sources told the newspaper that its vendor due diligence for Lilliput was of a preliminary nature only. Bain and TPG also brought in their own consultants to work on the deal.

 

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