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RCOM special audit report
October, 16th 2009

Anil Ambani on Thursday alleged there was a vicious and mala fide campaign against his telecom company Reliance Communications (RCOM) by a known rival group and dubbed the special audit report, which claimed that RCOM was mis-stating its revenues as biased and prejudiced. But the auditor, Parekh & Co defended its work and also denied a claim by Mr Ambani that it had not sought feedback from RCOM.

It was Mr Ambanis first reaction after some parts of a special audit report, which alleged that RCOM did not show revenues of Rs 2,799.19 crore for the financial years 2006-07 and 2007-08 costing the government Rs 315 crore in terms of licence and spectrum fees that are charged as a percentage of revenue, was leaked out early this week.

Jaipur-based Parakh & Co, the auditor, also alleged that RCOM inflated wireless revenue by 23% or Rs 2,915 crore to Rs 15,213 crore in the shareholders report in 2007-08.

DoT appointed the special auditor to examine the allegations of evasion of license fee from the Cellular Operators Association of India, the association of GSM companies. The audit was later extended to other telcos including Bharti, Idea, Vodafone and Tata Teleservices. These audits are underway.

I must straightaway point out that whatever alleged remarks the special auditor has arrived at are completely unilateral, biased and prejudiced, because, contrary to basic standards of professional conduct, and against all auditing norms and practices, the alleged report/findings have not even been discussed by the special auditors with RCOM till date even though they have been conducting the audit for the past more than six months, Mr Ambani said in a conference call in Mumbai.

He also said the special auditors, who he claimed were under the influence of his business rivals, had exceeded their terms of reference and recorded unwarranted and completely incorrect findings on matters beyond the scope of their audit, thereby again demonstrating their bias and prejudice.

When contacted, Prakash Sharma, senior partner of Parekh & Co, the audit firm which carried out the special report, said: We are appointed by the department of telecom to do the special audit on RCOM and were given a 16-point reference by the communications ministry.

We carried out the audit and gave our reply and opinion to each of the 16-points in the terms of reference. We did submit the special audit report within the specified time frame. We have not shared the audit report with anybody or discussed it with any person we cannot disclose the contents of the audit to anybody.

Mr Sharma said the allegation that RCOM was not consulted was untrue. Parekh & Co has prepared an independent report and we have not been influenced by anybody including Reliance Communications. After finishing the audit, we finalised the report only after discussing every single point with RCOM. As directed by the DoT and as per law, we have followed all procedures and standards while preparing the special audit. Mr Ambani claimed that there was no irregularity in RCOMs accounts, though he did not get into details.

In order to drive home his point he pointed out RCOM itself reported its revenue figures to the stock exchanges, the department of telecommunications (DoT) and the Telecom Regularity Authority of India (Trai). These accounts have been subjected to the peer group review by auditors, they are in line with the telecom and general industry practice and these accounts have been duly audited by the statutory auditors KPMG and Chaturvedi & Shah.

A person close to KPMG said RCOMs statutory auditors have signed on a single set of financial statements which has been provided to the exchanges and to the investing public. The person said the statutory auditors had no knowledge of data provided to the DoT and the TRAI. Both KPMG, one of the Big Four accounting firms, and Chaturvedi & Shah, declined to comment on the issue saying they have not received any report from the government-appointed auditor Parekh & Co.

Mr Anil Ambani said the leak of the special audit report and the accompanied hammering of his group stocks was meant to create panic and hurt his 11 million shareholders. Nearly two years ago in 2007-08, when we were launching our Reliance Power public offer, and on its listing, there was a similarly vicious campaign of disinformation and hammering of our stocks to sabotage the offer, he said.

He said he would lodge complaints with Sebi to probe the hammering of his group stocks and will take up the conduct and actions of the special auditors with the ICAI. Responding to this, Mr Sharma of Parekh & Co said: We will only respond if there is a written complaint against us.

According to Sebi sources, the market surveillance department has already started analysing data to find out if there has been any manipulative trading at the RCOM counter.

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