Auditors’ Role in Internal Financial Controls – Ola Electric Case Study

Section 143(3)(i) of the Companies Act, 2013 casts a clear responsibility on statutory auditors of listed companies and certain unlisted entities to report whether adequate internal financial controls with reference to financial statements are in place and whether such controls are operating effectively. Complementing this statutory requirement, the Standards on Auditing reinforce the auditor’s dual role—first in evaluating the control environment and assessing risks, and second in communicating any deficiencies observed. SA 315 requires auditors to obtain a thorough understanding of the entity and its internal controls to identify and assess the risks of material misstatement, while SA 265 mandates that significant deficiencies be brought to the attention of management and those charged with governance. Taken together, these provisions underline that strong internal controls form the backbone of reliable and transparent financial reporting.

Against this backdrop, the recent case of Ola Electric has drawn attention. In its FY25 annual report, the statutory auditor flagged a material weakness in the internal controls of Ola Electric Mobility Limited’s key subsidiary, which also happens to be the company’s largest revenue contributor. The auditor noted the absence of adequate systems for physical verification of raw materials and finished scooters stored at retail outlets and state distribution centres. Such a lapse, the report cautioned, could potentially lead to material misstatements in critical financial areas, including inventories, the cost of materials consumed, and work-in-progress balances, thereby casting doubts on the accuracy of the company’s financial reporting.

While the auditor clarified that, in all other material respects, Ola Electric maintained adequate internal financial controls and confirmed their operating effectiveness as of March 31, 2025, the observation nevertheless highlights an important gap. It underscores the auditor’s responsibility, in line with SA 315 and SA 265, to evaluate both the operation and effectiveness of internal controls, particularly in sensitive areas such as inventory. More importantly, it reinforces the need for Ola Electric to strengthen its verification and monitoring mechanisms to safeguard reliability and transparency in its financial disclosures.

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