SEBI's forensic auditors may have made some mistakes

MYSTERY POST: Manpasand was still a fraud

Who’s behind the mask? Chokshi & Chokshi, that’s who.

The basic story of Manpasand Beverages is that it was a total, complete fraud. It was supposed to be selling sugar water disguised as orange juice to common people, but was actually selling coked up financials disguised as legitimate accounting to investing people.

All of it was figured out, investigated, and SEBI finally came out with a detailed order that I wrote about last month. But for someone that’s turned reading SEBI orders into a late-night pastime, this one was slightly unusual.

Usually, SEBI does its investigations itself. Sometimes complicated ones which involve seizing mobile phones, asking cellular companies for location data, keeping a second-by-second record of who appeared on television and how much money they made, etc. But this time, SEBI outsourced the job of figuring out what was wrong with Manpasand to an auditor—Chokshi & Chokshi LLP. This made sense. SEBI is anyway overloaded with work.¹ These auditors do stuff like this day in and day out. There were just accounts to scrutinise, no investigative work to do. Might as well let them figure things out and come back with their findings.

One problem though with this is that, sometimes, auditors tend to get a bit overzealous in trying to please their clients. Deloitte, which was Manpasand’s auditor for eight long years, found nothing wrong in its accounts until a year before the company’s fraud became public. In a way, Deloitte was a “good” auditor because it did keep its client happy. So did Chokshi & Chokshi! In its attempt to please its client (SEBI), I found at least two places where it made mistakes.

Are these mistakes in any way consequential? Of course not. Then why am I writing about them? Because I think an auditor assigned to find the mistakes in another auditor’s work making mistakes to be funny. (Even funnier would be if someone finds mistakes in me finding mistakes in the auditor finding mistakes in the auditor’s work.)

Returns and GST stuff

Somewhere in Manpasand’s accounting books, Chokshi & Chokshi saw that the company had reversed the “input tax credit” it had received from certain purchases, for the GST it paid on some sales. This