EROS’s ‘Dozen Unknown’ audited subsidiaries out earn ‘Big Name’ Grant Thornton “audited” parent

Investors may be or may not be aware that Eros International Plc (NYSE: EROS, US$13.84, “EROS”) is presenting consolidated financial statements purportedly audited by Grant Thornton India LLP (“Grant Thornton”). In actuality, the audit is a conflation created by Grant Thornton of at least six different auditors, most of them unknown, and at least four of them are not registered with the Public Company Accounting Oversight Board (“PCAOB”).

EROS reports its consolidated financial statements on a parent that is audited by one auditor (Grant Thornton) who does not audit its principal subsidiary, Eros International Media Limited (“EIML”), listed on the National Stock Exchange (“NSE”) in India (NSE: EROSMEDIA, INR205.70).

EROS has at least 23 subsidiaries and step-down subsidiaries.  EROS does not disclose if Grant Thornton actually audits any of these other subsidiaries, and does not file an audited parent only statement. Therefore, investors cannot know the scale of the EROS assets that Grant Thornton actually reviews, which presents another significant concern.

EIML has 12 “subsidiaries and step down subsidiaries,” the “Dozen Unknown”. In its quarterly and annual reports EIML’s auditor, Walker Chandiok & Co. LLP (“Chandiok”), discloses that

it does not review the interim financial results of twelve subsidiaries and step down subsidiaries included in the Statement” and that it does not “audit the financial statements of twelve subsidiary companies.

These subsidiaries are “audited” by a number of small, unknown Indian firms including Jayesh Sheth & Co., S. Ravi & Associates, Sandeep Shridhar & Associates and Anil Jagetiya & Co.  For the nine months ended December 31, 2015, EROS’s reported net profit was less than the profit generated by these 12 subsidiaries. They reported US$13.1 million in net income while EROS made US$12.3 million in net come during the same period.

The figures referenced above are sourced directly from EIML’s filings with the NSE and EROS’s quarterly earnings releases filed with the U.S. Securities & Exchange Commission (“SEC”) containing disclosures for the nine months ended December 31, 2015, 2014 and 2013.

Another unnerving curiosity is that until October 2015, EIML publicly disclosed the audited financial reports of these subsidiaries on its investor relations page (web archives and also saved in an However, during November 2015, these reports were removed, raising yet more concerns around the increasing opacity of EIML’s financials and the integrity of EROS’s audit itself. Investors should note that this action by EIML, and thereby EROS, came about after the public allegations were made against them.

In order to fully interpret this report in context, it is highly advisable to read the letter written by to Grant Thornton International Limited, on June 07, 2016, concerning Grant Thornton’s divided responsibility audit standards, along with the report titled, “Eros backs away from Skadden’s independent review.”