OnePlus India Audit Flags Compliance & Operational Issues

Amid heightened scrutiny of Chinese firms in India, OnePlus Technology India has come under the radar after auditors flagged several compliance and operational issues, including the use of foreign-hosted accounting software, program codes in a foreign language and delayed provident fund contributions.

As per OnePlus India’s standalone financial report filed with the Ministry of Corporate Affairs (MCA), OnePlus is currently addressing these concerns.

The filing added that OnePlus is updating its IT systems. “The management will also test the new system to confirm that the audit trail has been enabled and make available such a report to the auditor along with the necessary access to independently test the same during the financial year 2024-25,” the company said.

It further said that the company has taken the steps for making the outstanding payment of contribution in the employee provident fund for the year 23-24.

The filing appended the auditor’s report that flagged the risk of potential action from the Enforcement Directorate (ED) and the Income Tax Department.

The filing dated May 27 noted, “Accounting software used by the company for preparation and maintenance of its books of account has been hosted on physical servers located outside of India. Further, the program codes were maintained in a foreign language which posed significant limitations in the ability to test such codes and further due to absence of Service Organisation Control Type 2 (SOC 2)/SAE 3402, ‘Assurance Reports on Controls at a Service Organization’ the auditors were unable to comment on the audit trail feature of the accounting software.”

The auditors noted that OnePlus’s accounting software is hosted on servers maintained by Guangdong OPPO Mobile Telecommunications Corp in Dongguan, China. The use of program codes in a foreign language (presumably Chinese) hampered audit procedures related to code testing, security, and compliance. 

Additionally, the absence of SOC 2 or SAE 3402 certifications prevented the auditors from verifying the presence of a compliant audit trail.

Shah & Jain Chartered Accountants serves as the statutory auditor for OnePlus India, while Grant Thornton Bharat LLP is the internal auditor. The filing did not clarify whether both or only one of them flagged the issues.

Notably, OPPO, OnePlus’s parent company, had previously come under ED scrutiny in 2021 for alleged money laundering, tax evasion, and regulatory violations. Chinese firms then reportedly faced fines of around INR 1,000 Cr for such infractions.

Regulatory pressure on Chinese smartphone companies in India has intensified since border tensions between the two nations escalated in 2020. 

Xiaomi, another Chinese brand, told Indian authorities last year that the heightened scrutiny had made component suppliers hesitant to invest in India. 

Despite these issues, OnePlus Technology India reported operating revenue of INR 15,217 Cr and a net profit of INR 230 Cr for FY24. However, these numbers are not directly comparable to previous years due to changes in the company’s business structure in June 2023.