Red flags. Karti P Chidambaram urges ICAI to probe Byju’s financials

Member of Parliament, Karti P Chidambaram has written to the Institute of Chartered Accountants of India (ICAI), urging it to probe the financials of edtech decacorn Byju’s.  

He raised concerns about the company’s 18-month delay in filing its FY21 financials, 60 per cent of Byju’s employee-related costs being mentioned as capital expenses rather than operational costs, among other issues. In July, Chidambaram also wrote to the Serious Fraud Investigation Office seeking an investigation of Byju’s financials. 

“The Financial Reporting Review Board (FRRB) under the ICAI has the power to review general purpose financial statements of enterprises and auditor’s report thereon relating to which serious accounting irregularities have been highlighted by media reports. I would like to bring to attention a number of red flags in Byju’s financials in FY2021,” Chidambaram said in the letter. 

Pointing out the red flags in Byju’s financials, Chidambaram said that analysing how Byju’s earns its money and where it spends it is puzzling. Nearly 81 per cent of its operating revenue for FY2021 constitutes of sale of edutech products, including tablets, SD cards, and laptops. “For an edtech company, is it not blatant misrepresentation of facts to classify hardware as edutech?,” he added. 

Concerns on expenses

The letter also raised concern on the expenses front of Byju’s, where the company recognised 60 per cent of costs related to employees as capital expenses rather than operational costs. “If their costs were counted as a direct expense, instead of a capital expense, Byju’s total loss for FY2021 would have gone over ₹5,000 crore. Such irregular accounting practices fail to give a clear picture of Byju’s income, expenses and losses,” wrote Chidambaram.

While announcing its FY21 financials, Byju’s said that it earlier recognised revenues from streaming services upfront and in full, on the commencement of a contract. Chidambaram’s letter has flagged this as a reason to open Byju’s old financials as well.  

“It is a standard accounting practice that subscription revenue can’t be recognised upfront, and has to be recognised over the period of delivery of the service. It warrants opening up of Byju’s previous financials statement as well,” he said. 

Earlier this week, Byju’s said that it will be laying off nearly 2,500 of its employees as it is merging four of its acquired companies including Toppr, Meritnation, TutorVista, Scholar, and HashLearn. Mrinal Mohit, CEO, BYJU’S India business, said that these measures will help the company achieve profitability in the defined time frame of March 2023. 

“In light of the aforementioned issues, it is clear that the company is not in a sound state of financial health. In the interest of the consumers and the company’s employees. I urge ICAI to review Byju’s financial statement,” concluded Chidambaram. 

Byju’s also laid off around 500 people across Whitehat Jr. and Toppr in June, to recalibrate its business priorities and accelerate its long-term growth. In September, Byju’s reported a 20x jump in its losses in FY21.

Byju’s did not comment on this story, till the time of press.

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