Coming down heavily on companies where auditors have flagged serious lapses, regulator Sebi and stock exchanges have asked at least 75 listed firms, including Kingfisher Airlines and its parent UB Holdings, to restate their financial accounts after addressing these issues.
Coming down heavily on companies where auditors have flagged serious lapses, regulator Sebi and stock exchanges have asked at least 75 listed firms, including Kingfisher Airlines and its parent UB Holdings, to restate their financial accounts after addressing these issues. These directions have been issued by the two top exchanges BSE and NSE in the past one year on Sebi's directive and many of these companies are believed to have either restate their accounts or are in the process of doing so. The companies that fail to submit a compliance report to the exchanges would face penal action by the regulators, a senior official said.
According to information available with the two exchanges, the companies which have been issued directions to restate their financial accounts include Vijay Mallya-led group's holding company United Breweries Holdings Ltd (UBHL), long-grounded air carrier Kingfisher Airlines, as also another crisis-hit company Financial Technologies India Ltd (FTIL). Other such companies include Videocon Industries, state-run NHPC, GMR Infra, Lanco Infra, GTL Ltd, DCM Financial Services, Kitply, CESC, Oudh Sugar Mills, Binani Industries, Bartronics, Indowind, Indian Metal and Ferro Alloys (IMFA), Next Mediaworks and Century Extrusions. While BSE has issued such orders to over 30 companies, the NSE has also asked more than 40 listed firms to restate their respective financial accounts on recommendations of Sebi's Qualified Audit Report Review Committee (QARC) and the subsequent review by the Financial Reporting Review Board (FRRB) of the accounting regulator ICAI.
The QARC has also got representation from the ICAI, stock exchanges and other stakeholders and it was set up by Sebi with an aim to enhance the quality of financial reporting done by listed entities. Sebi took this step after it found that the financial statements of a large number of companies contained 'auditor qualifications' raising serious concerns about their financials and reporting standards. The irregularities were mostly found in the areas like investment values shown in balance sheets, provisions for debt recovery, estimated losses for capital work in progress, promoters' contribution under current liabilities, as also in accounting for taxation, related party disclosures, etc.
The two exchanges have been issued these orders on a regular basis and the next set of notices are expected to be dispatched in the coming days. Among those already served such notices, UBHL was asked in October 2014 to restate its financial statements pertaining to the fiscal 2012-13, after auditors red-flagged "significant financial exposure to Kingfisher Airlines" among other issues. Kingfisher itself was asked in the same month to restate its financial statements for the same year after FRRB ruled that the auditors' qualifications were "justified" on issues like accounting method for aircraft repair and maintenance costs, impairment losses, recognition of tax credits, etc.
On Sebi's directions, leading bourse BSE asked Videocon Industries on April 23 to restate financial statements for the year 2012-13 and "suitably rectify/address the qualifications contained in the report of the statutory auditors that is part of your Annual Report for the year 2012-13".
"Further due care may be exercised by the company to ensure that the same qualification should not appear in the Audit Report for the next reporting period," the BSE said.
The auditor qualifications cited in the notice include those relating to investments made in and advances given by Videocon to its subsidiary Videocon Telecom Ltd (VTL), as also about the consolidated financial statements regarding recognition of deferred tax assets by this subsidiary.
NHPC has also been asked to restate financial statements for the year 2012-13.
NSE has asked FTIL to restate its 2012-13 financial statements and "suitably" rectify the qualifications raised by the company's statutory auditor while ensuring that the same qualification does not appear again in the next reporting period.
This qualification relates to investments and other issues about crisis-ridden NSEL.
Among other companies, GMR Infrastructure Ltd, Binani Industries, GTL Limited and DCM Financial Services were also asked to restate their 2012-13 financial statements, while IMFA, Jenson & Nicholson (India) Ltd, Century Extrusions have been directed to restate their 2013-14 financial statements.