INSUBCONTINENT EXCLUSIVE:
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, LT's shipbuilding arm, Manpasand Beverages, Vakrangee Ltd and Atlanta Ltd.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, LT
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.
"The Code of Ethics for Chartered Accountants makes it mandatory that a chartered accountant has to follow the principles of
objectivity, integrity, reliability and credibility of the information that it gives in its report and failure to do so can cause a
suspension of their licence," Varma noted.
