CALCUTTA, July 8: ITC Ltd is believed to have snapped ties with statutory auditors Lovelock & Lewes, the Indian associate of Coopers & Lybrand. The Rs 6,000-crore tobacco giant is likely to appoint SB Billimoria & Co as its statutory auditor.

The appointment of a new statutory auditor is expected to come up at the company's annual general meeting to be held next month.

An ITC spokesperson told The Financial Express: "We will recommend a periodic rotation of auditors, but such a proposal cannot be firmed-up without prior consent of the shareholders." The spokesperson declined to comment on whether audit firm SB Billimoria will be recommended to take over the statutory audit function.

Although ITC is keen to stress the obvious advantage of rotation of auditors - it is a healthy accounting practice - industry watchers say the relationship between the tobacco giant and its statutory auditor had turned uncomfortable for quite sometime.

It is learnt that the ITC top brass has not been too happy with Lovelock for its failure to caution the company against alleged statutory violations, which resulted in the subsequent onslaught by the enforcement directorate. "Had the statutory auditors been more vigilant, the company's image wouldn't have suffered so badly," industry sources point out.

In fact, ITC's decision to appoint SB Billimoria as auditor for its Singapore-based subsidiary ITC Global was a pointer to the tobacco major's intentions to build a long-term relationship with the audit firm.ITC's decision to break off with Lovelock & Lewes is particularly interesting since the firm is the Indian associate of Coopers & Lybrand, the auditor of ITC's overseas shareholder BAT Plc.

At a time when Indian joint ventures are striving to streamline accounting practices with overseas parents, ITC has decided to break away from the normal practice and appoint independent auditors who are in no way related to the BAT auditors.

For ITC, the souring of relationships with Lovelock started almost three years ago when allegations of irregularities in ITC accounts in mid-1994 led to the auditors getting mired in a battle of nerves between ITC's overseas parent BAT Plc and the company's Indian management.

Lovelock & Lewes was queried on why certain losses made by ITC in rice trading during 1992-93 had not been properly accounted for in its documentation. In fact, ITC was alleged to have understated its trading losses by as much as Rs 20 crore.

This was corroborated in a crucial special audit report prepared for the ITC board by Lovelock & Lewes that extensively examined the company's deals with companies in Sri Lanka and the United States. Among alleged transgressions was ITC's importing back to India rice that had already been exported, which can be construed as a violation of the Foreign Exchange Regulation Act.Apart from trading losses, the audit firm unearthed certain trading practices that were questionable and could be construed as Fera violations. The enforcement directorate is believed to have used the special report findings in course of its investigations and interrogations of the ITC top brass in 1996.

The Lovelock draft had, however, drawn flak from various quarters since it was felt that the auditors had attempted to sidestep responsibility by merely hinting at irregularities. "Had the auditors been aware of such responsibility, why was the statutory audit report silent on the matter?" it was pointed out.

A subsequent special audit committee report, headed by Satinder Agarwal - an Industrial Finance Corporation of India nominee, filed later gave a clean chit to the management and cleared top ITC executives of any personal responsibility for the mess.

For the Calcutta-based Lovelock, the loss of the prized ITC account will come as a major setback. The loss will, however, be partly offset by the fact that the firm has clinched the merged Hindustan Lever account. Among Lovelock's other important clients are CESC, Goodricke Group, Tata Tea, Magor, ICI, Rallis India and Berger Paints.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.