BL explainer: Byju’s rapid descent into infamy with auditor’s resignation

There were some shocking developments relating to Byju’s, India’s most valued start-up company, on Thursday.

Deloitte Haskins & Sells, the company’s auditors, resigned because they are unable to finalise the audit reports for the financial years ended March 2021 and March 2022 as the modifications suggested by them have not been accepted or done.

Also read: BYJU’S sacks 1,000 employees in another round of layoffs 

Deloitte was appointed for a five-year tenure till March 2025. Byju’s is trying to play down this resignation by stating that it has now appointed BDO (MSKA & Associates) as its statutory auditors for the year commencing from FY22 for the next five years. But the statutory auditor’s resignation is a very serious matter.

What were the discrepancies pointed out by the auditors earlier?

The accounting statements for 2021 had recently been restated, with the loss of the company expanding to ₹4,588 crore. The restatement was because the company was not recognising revenue over the term of the period of subscription and instead adding the entire amount upfront. Two, auditors wanted the interest paid on loans on behalf of customers to be netted from the revenue.  

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The resignation of the auditors shows that the loss could be much larger for FY21. Though Byju’s has claimed that it recorded revenue of ₹10,000 crore in FY22, that number should now be taken with a pinch of salt.

What does the rumour about Directors’ resignation imply?

The market was agog with speculation that three of Byju’s directors had resigned. They include G V Ravishankar of Sequoia Capital and Vivian Wu of Chan Zuckerberg Initiative.

Also read: Byju’s leap from frying pan into the fire

If the resignation of directors is true, it shows enormous corporate governance lapses and can lead the company’s valuation to crash. The valuation was $22 billion at its peak, this was slashed to $8.4 billion by Blackrock this May.

With all these developments, it becomes clear that none of the company’s financial numbers can be relied upon, which will result in valuation plummeting to, perhaps, below $5 billion, even.

Will Byju’s be able to revive, after all this?

Until a day ago, they did stand a chance. They have a good product, a large subscriber base, etc. So, yes, the company had a chance to regain trust of its investors and subscribers.

Also read: BYJU’S lenders reject one-on-one meets, seek group discussion

But given the latest news about resignation of auditors and the possible resignation of directors, a comeback of the company looks very unlikely.

And it is likely to be a setback for the entire start-up ecosystem. Because the country’s most valued start-up seems to have indulged in practices which are not above board.

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