Edtech startup Byju’s troubles seem to know no end. Now, its auditor BDO has called it quits over alleged financial lapses and governance hurdles at the edtech company. This is not the first time an auditor has resigned from Byju’s. In June last year, Deloitte quit for similar reasons. In this explainer, we will explore the developments since then.

It won’t be wrong to say that the last two years have been the most difficult in the company’s history. Once India’s most valuable startup, Byju’s valuation has plummeted to near zero and the company has seen a massive decline in investor confidence. Grappling with financial and regulatory issues, it has been inundated with a string of lawsuits and the insolvency resolution process is underway. And while his company burns, taking with it the future of employees and customers, founder Byju Raveendran is tucked away in Dubai.

How BDO got the job

For context on these recent developments, let’s rewind a bit. Byju’s needed to reinvigorate confidence around the company right before exploring a potential public listing. And Deloitte—one of the Big Four auditing firms—was roped in as the statutory auditor of Byju’s parent Think & Learn for a financial clean-up from 2020 till 2025. Under Deloitte’s scanner, Byju’s dismal and long-delayed 2020-21 financial results saw losses balloon to Rs 4,500 crore (about $540 million), and received widespread scrutiny.

It was clear that the accounting major had trouble keeping up. “For the year ended 31 March 2021, statutory audit fees includes Rs 3.5 crore towards the additional effort incurred in the audit consequent to material weaknesses observed in internal controls,” Deloitte had said in Byju’s 2020-21 earnings report. To put it simply, Deloitte found that Byju’s internal processes for managing and safeguarding financial information were so inadequate that the accounting firm had to put in more work to properly audit the company, and therefore it wanted an additional Rs 3.5 crore ($420,000) as part of its audit fee.

So it didn’t come as a surprise when the accounting firm severed its ties with Byju’s in June last year over delays in furnishing details for clean financials for the 2021-22 fiscal. Three board members (G.V. Ravishankar of Peak XV Partners, Vivian Wu of Chan Zuckerberg Initiative and Russell Dreisenstock of Prosus) also stepped down from the company’s board.

In a statement, however, the company initially denied claims of the board members leaving, and said Deloitte’s departure was part of a “planned exit”. It quickly appointed MSKA & Associates, an Indian affiliate of global accounting giant BDO, as its auditor from 2023 to 2027.

But things seem to have worsened for the company since, as it trudges towards insolvency with billions in dues. MSKA (and BDO, by extension) is the second auditor that has washed its hands of the matter now. In its resignation letter, BDO said it would issue a no-objection certificate for any incoming statutory auditor only if Byju’s pays up for whatever services have been rendered till now. So it would be safe to say that BDO and Byju’s are not parting on good terms.

What does the letter say?

The letter is a scathing attack on Byju’s. The main points of contention are:

BDO was unable to go through with the audit process because its multiple requests through the year for information on financial statements from Byju’s for 2022-23 were met with inadequate replies. The fact that these statements were not put forth to the shareholders by 30 September 2023 at the company’s annual general meeting would make it a direct violation of the Companies Act, 2013.
BDO’s requests for a complete forensic review of Think & Learn’s transactions with More Ideas General Trading LLC in Dubai were met with an inadequate response from the startup. More Ideas is a Byju’s reseller in the UAE and the sole reseller for the entirety of the Gulf Cooperation Council (GCC). The transaction in question pertains to a certain Rs 1,400 crore ($168 million) that the Indian company has failed to recover from More Ideas, despite paying commissions of more than Rs 300 crore on sales amounting to Rs 634.18 crore recorded in 2021-22.
BDO received no response from the board of directors too, and subsequently filed form ADT 4—a report filed to the central government by a company’s auditor if it finds any evidence of fraud within the company in a 60-day time frame.
Some critical information on ongoing legal and insolvency proceedings was either withheld from BDO or delayed in communication from Byju’s, which severely hampered the audit process. For example, the notice received from the shareholders for conducting an extraordinary general meeting—an urgent meeting, basically—in the company was not shared with the BDO’s audit team. Other notices from statutory authorities and from vendors who wanted to initiate insolvency proceedings against the company also failed to reach BDO in time.
Due to the insolvency process, Byju’s has lost access to certain books of accounts of its subsidiaries—yet another auditing hurdle. The auditors specifically mentioned the absence of audit trails and confirmations to the tune of $533 million borrowed from Glas Trust Company LLC, a group of US lenders that provided a $1.2 billion term loan to Think & Learn in 2021.

It is, therefore, clear that the auditing process at Byju’s requires more than a band-aid at this point. BDO citing similar issues as Deloitte should mean that these failings have festered at the company for quite a while.

Byju’s response

The company has fired back since then, calling the move “legally untenable” due to the startup’s insolvent status and an “escapist” measure. “The real reason for BDO's resignation is Byju's firm refusal to backdate its reports, while BDO went to the extent of recommending a firm that could facilitate such an illegal activity… Multiple call recordings exist, where BDO representatives explicitly suggest backdating these documents, which Byju's refused to do. Byju's strongly believes that this is the main reason for their resignation,” the company said in a statement.

This would be huge if true, but it is difficult to take anything the company says at face value given its track record. It is already on its way to insolvency. All its debt and assets are under lock and key, so as to help resolve creditors’ claims, under what is called the Insolvency Resolution Process (IRP). Now, Byju’s has basically alleged that the auditor attempted to bypass the IRP. But this argument doesn’t hold water because the IRP has only been going on since July 2024 for a total of 45 days, and the letter clearly states that BDO has been prodding the troubled startup since January 2024 to provide these details.

Does the man have a plan?

“An auditor resigning is usually a red flag; two auditors resigning back to back is a waving red flag,” says an industry expert who has tracked the company for nearly a decade, requesting anonymity. “The narrative does not change. Not once has Byju [Raveendran, the CEO] or his family taken ownership of any issue. And now they are blaming it on the insolvency resolution professional, who has control of the company for 45 days only. What about the remaining time when Byju had control?”

Now, Raveendran’s efforts to control the narrative are not unexpected; he is fighting tooth and nail to protect what he’s built. However, as time goes by, what once was India’s most valuable startup seems to be treading in even murkier waters.

Note that the insolvency resolution professional, with creditors like Aditya Birla Finance, ICICI Bank and InCred Finance, excluded Glas Trust Company from the Committee of Creditors. The group of US lenders now says the resolution professional’s move is “unprecedented and entirely illegitimate”.

And even as lenders fight for whatever scraps remain of the former edtech giant, the list of people slighted by the edtech company keeps growing.

Read all of our Byju’s coverage here.

Cover illustration by Devyani M/ The Morning Context. Cover image from Wikimedia Commons.