Noose tightens for listed cos as auditors flag gaps

Noose tightens for listed cos as auditors flag gaps

FPJ BureauUpdated: Wednesday, May 29, 2019, 08:51 AM IST
article-image

Net worth erosion, mounting losses, lack of disclosures put firms on watchlist

New Delhi : Auditors seem to be getting more vocal about financial gaps at listed companies, possibly due to an enhanced regulatory glare, as independent audit reports for a number of publicly-traded companies have begun flagging issues like net worth erosion and lack of necessary disclosures.

In some cases, the auditors have even begun quitting the audit mandate, while in many others they have expressed their reservations about whether their clients can continue operating on “going concern” basis with net worth turning negative, losses mounting and diminishing prospects of required revenue and cash flow generation.

The companies that have seen auditors flagging various issues include Jet Airways, L&T’s shipbuilding arm, Manpasand Beverages, Vakrangee and Atlanta.

Experts believe this trend may get even more prominent going forward with several sectors facing financial difficulties at a broader level and also due to corporate governance related issues at individual levels.

Experts believe the recent move by auditors could also be due to regulatory glare on them that requires the audit community to show responsibility to broader stakeholders and not just the corporate clients. Among others, auditors of Jet Airways, L&T Shipbuilding and Reliance Naval and Engineering raised doubt whether these companies can continue as a “going concern”.

The management of all these companies, on their part, have maintained that necessary initiatives are being taken to improve their finances and there were no major causes for worry.

In accounting parlance, the ‘going concern assumption’ means that the company will remain in business for the foreseeable future without being forced to halt operations and liquidate its assets. Moreover, Price Waterhouse quit audit mandate of Vakrangee and Atlanta, while Deloitte resigned as statutory auditor of Manpasand Beverages.

They discontinued their engagements with these firms on account of lack of requisite information sought by them from the management.

Both Price Waterhouse and Deloitte did not comment when asked about this emerging trend.

According to RSM Astute Consulting Group’s Suresh Surana, auditors have become more vocal and explicit in terms of information requirements and do not hesitate in giving qualified opinion or disclaimers regarding going concern, assets impairment, non-provisioning, revenue recognition and legal contraventions.

The audit committees, independent directors, board of directors, investors and regulators have become more demanding in terms of audit expectations and reporting. Besides, the recent developments regarding non-performing assets and insolvency resolution have also brought the role of auditors in sharp focus, Surana said.

“We feel the move by auditors will bring greater transparency but at the same time, all the stakeholders need to understand the scope and limitations of the audit process and that an auditor is not an insurer,” he added.

Experts also feel that regulatory action against some auditors including in cases like Satyam scam may have led to the audit community going on an image makeover exercise.

Sushila Ram Varma, Chief Consultant at The Indian Lawyer & Allied Services, said that a correct auditor’s report helps investors in deciding whether they would like to invest in the company.

Price Waterhouse quit the audit mandate of technology firm Vakrangee due to the company not providing “adequate and relevant information and explanations regarding the company’s election books, bullion and jewellery businesses”.

Besides, it withdrew from the auditing engagements of construction and infrastructure company Atlanta as the firm allegedly did not share details of an ongoing income tax investigation and the resignation of an independent director.

Auditing major Deloitte Haskins & Sells resigned as statutory auditors of Manpasand Beverages as the fruit juice maker failed to provide them with “significant information” on the financial results for the year ended March 31, 2018.

The new Companies Act, 2013 contains elaborate provisions regarding liability of statutory auditors in case auditor has contravened the provisions knowingly or wilfully with the intention to deceive the company or its shareholders or creditors or tax authorities.

Going gets tough  The auditors have even  begun quitting the audit man  date, and have expressed  their reservations about  whether their clients can con   tinue operating on ‘going concern’ basis  Jet Airways, L&T’s                                                          Shipbuilding, Manpasand   Beverages, Vakrangee and  Atlanta are on the watchlist of   auditors over various issues

fExperts believe the move  could be due to regulatory  glare on auditors that requires  them to show responsibility to broader stakeholders and not  just the corporate clients

CAs barred from valuing unquoted shares: CBDT

MUMBAI: The income tax (I-T) has barred all chartered accountants (CAs) from valuing shares of closely-held companies. Earlier, the fair market value of unlisted equity shares was calculated at the option of the company on either the book value on the valuation date or by the discounted cash flow method. Calculated by a merchant banker or a CA. However, the Central Board of Direct Taxes (CBDT) has removed the CAs from the list of authorised professionals in this regard. Now, only a merchant banker may do this. This change brings this provision at par with Rule 3 of the I-T Act, which says only a merchant bankermay calculate the value of unlisted shares issued under Employee Stock Ownership schemes. So, unlisted shares or unlisted companies may be sold or valued by a CA’s valuation but, for I-T purposes, it will require a merchant banker’s valuation report.

RECENT STORIES

Level Unlocked: Coal India Attains Annual Target, Scales 610.8-MT Supply

Level Unlocked: Coal India Attains Annual Target, Scales 610.8-MT Supply

Fiscal Year 2024 Farewell: Sensex At 73,635.48 & Nifty Above 22,300 As Markets End In Green;...

Fiscal Year 2024 Farewell: Sensex At 73,635.48 & Nifty Above 22,300 As Markets End In Green;...

Tata Launches Nexon Smart+ Entry-Level AMT Variant, Prices Start At Rs 10 Lakh

Tata Launches Nexon Smart+ Entry-Level AMT Variant, Prices Start At Rs 10 Lakh

Attention Debit Card Holders, Your Maintenance Charges Are Set To Spike: THIS Bank Has Revised The...

Attention Debit Card Holders, Your Maintenance Charges Are Set To Spike: THIS Bank Has Revised The...

Rock Solid: Citroen Basalt Vision Revealed

Rock Solid: Citroen Basalt Vision Revealed