Are Infosys’s financials too good to be true?
The Management Of Infosys Ltd Has Been Accused Of Following “Unethical” Practices To Boost Short-Term Revenue And Profits, By An Anonymous Group Who Call Themselves The “Ethical Employees”. The Group Has Lodged A Complaint With The Board Of Infosys And The US Securities And Exchange Commission (SEC) Stating That They Possess Emails And Voice Recordings In Support Of Their The Claims. The Story First Surfaced In The Economic Times In On 21 October.
In The Letters Sent To The Infosys Board And The SECI, The Complainants Have Asked The Auditors To Check Deal Proposals, Margins, Undisclosed Upfront Commitments Made And Revenue Recognition. The Letter Further Added That The Complainants Were Asked To Not Fully Recognisee Visa Costs In The Quarter And Were Pressured To Not Immediately Recognise $50 Million In Reversals In A Contract.
“In Large Contracts Like Verizon, Intel, JVs In Japan, ABN AMRO Acquisition, Revenue Recognition Matters Are Forced, Which Are Not As Per Accounting Standards,” The Letter Stated.
According To The Letter, CEO Salil Parekh And CFO Nilanjan Roy Were Pressuring The Finance Team To Show More Profits In Their Treasury Management. “In The Board Meetings, We Were Told Not To Present Data On Large Deals And Important Financial Measures As It Will Get Board Attention. CEO And CFO Are Asking Us To Show More Profits In Treasury By Taking Up Risks And Make Changes To Policies. This Will Provide Short Term Profits,” The Letter Stated.
Just A Week Ago In It’s Q2FY20 Numbers In The Fourth Quarter In A Row Infosys Ltd Continued Its Double-Digit Growth, Despite Tata Consultancy Services Ltd (TCS), Which Recorded A Decrease In Income In September To Single-Digit Points.
Commenting On Infosys’s Q2 Performance, CEO Salil Parekh Said: “Our Performance Was Robust On Multiple Dimensions – Revenue Growth, Digital Growth, Operating Margins, Operational Efficiencies, Large Deal Signings And Reduction In Attrition.”
“All These Are Clear Signs That We Are Progressing Well In Our Journey Of Client-Centricity And Maximizing Value For Our Stakeholders,” He Added.
Whereas, TCS Told Analysts That Visibility For The Second Half Of The Year Is Not Very Strong.
This Is The Second Time In Recent Memory That Infosys Has Been Involved In Whistleblower Complaints That Have Become Public. A Previous One Involved The Severance Pay Of Former CFO Rajiv Bansal, Which Became The Crux Of A Rift Between Infosys Founder NR Narayana Murthy And The Then-CEO Vishal Sikka In 2017. That Fight Precipitated Sikka’s Resignation The Same Year, And The Eventual Naming Of Parekh As The New CEO.