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Audit reservations beyond forex accounting
September, 21st 2009

Auditors have reservations about a wider range of issues on financial statements of listed corporates than a year ago.

This becomes clear from an analysis of observations made by them in the latest limited review reports for the quarter ended June 2009 for a sample set of companies.

Their reports highlight wider range of issues compared to even six months ago, when the most common observation pertained to accounting treatment of foreign exchange.

Poser on survival

Some of the noteworthy observations made in the latest report range from companies not recognising the financial implications (contingent events) of ongoing litigation to the deterioration in financial situation to the point where there is a fundamental doubt if the company can survive as a going concern.

There were also instances of reservations with regard to certain deviations from accounting standards.

The opinions of most companies differ from their auditors when it comes to recognising for litigations in their financial records.

DLF is one such example, where a public interest litigation filed against one of DLFs subsidiary went against it. The high court of States of Punjab and Haryana has held that forest land would not be used for non-forest purposes.

According to the limited review report for quarter ended June 2009, DLF has taken the stance that the court ruling will not have a material effect on its ability to continue the proposed project.

Same is the case with Fortis Health Care, where a PIL has been filed against one of its subsidiaries, Escorts Heart Institute and Research Centre.

As the outcome of the PIL remains uncertain, neither the company nor its auditors have been able to take a clear opinion at this stage.

Other instances of pending litigations are in the cases of Spice Communication, Sterlite Technologies, United Phosphorous and Hatsun Agro

Though the June 2009 quarter saw comparatively less number of observations on treatment of foreign exchange differences (AS 11) auditors commented on deviations from other standards, such as AS 6, AS 13, AS 28 and AS 29.

Deviations from AS

These remarks were found mention in reports of companies such as Neyveli Lignite Corporation, BEML, Strides Arcolabs and Lumax Industries.

In companies such as Great Offshore and Chettinad Cements, auditors have highlighted the lack of consistency in accounting policies.

In the case of Great Offshore, profits for the current quarter would have been lesser by Rs 19.36 crore, had the company not changed its policy on accounting for expenses incurred at the time of five yearly special surveys and life enhancement programmes.

Outstanding items

It is interesting to note that in case of Cholamandalam DBS, the auditors were unable to form an opinion about some outstanding items, because bank reconciliation statement (a crucial document for financial institutions), has not been fully prepared by the company.

Auditors have not hesitated to comment about the risk of going concern in the case of Wockhardt.

It has been stated in June 2009s limited review report that the companys ability to continue as a going concern depends on the implementation of the scheme.

Similarly, in case of Titagrah Wagons, auditors have drawn attention to Rs 65.65 crore of loans being advanced to one of its sick subsidiary companies for the purpose of purchasing certain financial assets.

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