Dear Friends,
Independent Auditors’report:
Basis for disclaimer of opinion:
“ We have been unable to obtain sufficient appropriate audit evidence on the books and records and the basis of accounting of the consolidated entity. Specifically we have been unable to satisfy ourselves on the following areas:
i. Valuation and impairment of assets: the consolidated entity obtained an independent valuation of its mining assets and mining licenses. The independent valuation was based on certain assumptions which may no longer be valid . The directors have not obtained an updated independent valuation to determine the extent of the impairment to the carrying value of the mining assets and mining leases. We have been unable to obtain supporting evidence, based on updated assumptions, which would provide sufficient appropriate audit evidence as to the carrying value of the mining assets and mining licenses.
ii. Going concern – the financial report has been prepared on a going concern basis, however the directors have not provided an update of their assessment of the consolidated entity’s ability to pay their debts as and when they fall due. The consolidated entity has reported a loss before income tax of $112,182,825 ( including an impairment charge of $83,792,190 ) for the year ended 31 March 2013 and a working capital deficiency of $407,998,443. At the year end, the consolidated entity is in breach of loan covenants, has significant arrears in arrears and has been unable to provide evidence to support the full amount of the replacement loan facility which is required to pay existing facilities. As discussed in Note 1(c) , the consolidated entity is in the process of re-negotiating financing and has announced a share placement to the market, subject to shareholder approval, for additional equity funding.
We have been unable to obtain alternative evidence which would provide sufficient appropriate audit evidence as to whether the consolidated entity may be able to obtain such financing, and hence remove significant doubt of its ability to continue as a going concern for a period of 12 months from the date of this auditor’s report.
iii. Deferred Tax Assets – included in non-current assets are Deferred tax assets of $87,302,944. In accordance with AASB 112 “Income taxes” , the recognition of deferred tax assets when an entity has incurred tax losses requires convincing other evidence that sufficient taxable profit will be available against which the unutilized tax losses can be utilized by the Group. The directors have not provided sufficient appropriate audit evidence of the Group’s ability to recover these losses.
iv. Recoverability of Trade Receivable - included in Trade Receivables is an amount of $27,795,628 due from the consolidated entity’s ultimate parent company. We were unable to obtain sufficient appropriate audit evidence to determine the recoverability of this receivable. Consequently, we were unable to determine whether any adjustment to this receivable was necessary.
v. Completeness of Contingent Liabilities and Subsequent Events disclosures – we were unable to obtain sufficient appropriate audit evidence to determine the completeness of the contingent liabilities and the subsequent events disclosures. Consequently, we were unable to determine whether any additional disclosures are required to the relevant notes.
vi. To the date of the directors approving the financial statements, we were not provided with sufficient appropriate audit evidence, or time, to finalise our procedures pertaining to various disclosures and transactions contained within the financial report. This constitutes a limitation of scope.
As a result of these matters, we were unable to determine whether any adjustments might have been found necessary in respect of the elements making up the consolidated statement of financial position, consolidated statement of profit and loss, and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows, and related notes and disclosures thereto.
Disclaimer of Opinion:
Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraphs, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial report. …….. "
Grant Thornton Audit PTY LTD
Chartered Accountants
Jain Kemp – Audit & Assurance
Sydney, 15 August 2013
I must confess i have no hope left in our Council.. but i do strongly feel that if no action is taken in this case, none of the members of ICAI should depose before ICAI's Disciplinary Committee, headed by ICAI President - Mr. Subodh Agrawal, who has shamed the profession.
Sincerly,
Arun Giri
When i first read this Businessworld article yesterday
written by a fellow journalist, i couldn't believe my eyes... therefore as any
journalist would do in such cases, i decided to dig deeper
.. http://www.businessworld.
And what i discovered was eye popping – Gujarat NRE Coke, a
company listed on BSE & NSE, is telling shareholders that in its
consolidated financial statements, 91% of its assets and 64% of its
revenues ( which are in Australian subsidiaries ) are unaudited!!!!! The Indian
auditor of the consolidated financial statements (Kolkata based firm ) mentions
it as "Other Matter" in the audit report and says he has relied
on "Management approved financial
statements" as far as Australian subsidiaries’ accounts are concerned.
The
auditor of the Australian subsidiaries ( Grant Thornton in Australia )
says they cannot express an opinion on the financial statements since
they have doubts on the company's “Going Concern” assumption, valuation
of impairment and assets, Deferred Tax Assets, Recoverability of
Trade Receivable and Completeness of Contingent Liabilities.
So what is the total amount of assets contained in
Australian subsidiaries? Rs. 8500cr out of Rs. 9300cr assets in consolidated
financial statements ( 91%)!! As for Revenues, Australian subsidiaries account
for Rs. 1400cr out of Rs. 2150cr revenues in Consolidated accounts (64%). Many
questions arise in one’s mind, but a few are basic:
1. How did ICAI President Mr. Subodh Agrawal, also the audit
committee chairman of Gujarat NRE Coke, recommend unaudited financials of
Australian subsidiaries to the Board of Directors, knowing fully well that they
are material amounts?
2. The Indian Auditor’s report is dated 30th May,
2013 while the Australian auditor’s opinion ( or refusing to issue one ) is
dated 15th August, 2013. Did
the audit committee/company disclose the Australian auditor's opinion to the Indian auditor?
4. Why did the Indian auditor not withdraw his “clean”
report after perusing the Australian auditor’s opinion. In the alternative, did
he offer any justification to discard the opinion of the Australian auditor?
5. How did the Indian auditor express an opinion on the consolidated
financial statements in the first place
when 91% of assets and 64% of revenues were unaudited?
6. What action did audit committee headed by ICAI President
Mr. Subodh Agrawal take after receiving the opinion of Australian auditor? Why
did they not inform shareholders of such a critical development? Does the audit
committee still stand by the unaudited “management approved” financials of
Austrlalian subsidiaries?
7.
In the Businessworld article, the Indian auditor says that the audit
was done "under the guidance of the President (ICAI)." This clearly
implicates Mr. Subodh Agrawal in this murky audit saga.
8.
ICAI President has no moral right left to continue in
office and preside over the fate of other members’ disciplinary cases.
The ICAI's FRRB committee (Financial Reporting Review Board ) should
forthwith review the financials in this case. We’ll see how much
courage FRRB Chairman Mr. Nilesh
Vikamsey has.
9. In the Businessworld article, Central Council member Mr. Zaware is quoted as
follows: “If the proportion of assets and revenues are from an
unaudited subsidiary is material and important, the auditor must naturally
disclose the fact, and issue a qualified opinion”. Essentially he is saying that what the audit committee and
auditor have done in this case, is in violation of auditing standards. While it
is ironic that Mr. Zaware should be talking of standards and governance, other
Council members should also express their opinion on this matter and seek ICAI
President’s resignation pending an enquiry.
10. Such a hue and cry is raised whenever a Big 4 or an MNC
firm is involved in an audit failure. Can we show similar outrage in this case
where an Indian auditor and ICAI President, is involved in possibly one of the biggest audit failures ever in India Inc’s
history? If strict, exemplary disciplinary action is not taken against the ICAI
President in this case, I wouldn’t grudge my friends in MNC firms who think
that the Council selectively targets them.
This is what the note of the Indian auditor says: ( Page 51
of annual report ) (http://www.gujaratnre.com/
Other Matter:
“We have relied on the unaudited financial statements of all
the Australian subsidiaries as referred in note no. 31 of the Consolidated
Financial Statement, whose financial statements reflect total assets of Rs.
8,532.55 Crores as at March 31, 2013 and total revenue of Rs. 1,394.86 Crores
and net Cash outflows of Rs. 5.61 Crores for the year ended March 31, 2013.
These unaudited financial statements has been approved by the Management
Committee of the respective subsidiaries and have been furnished to us by the
management, and our report in so far as it relates to the amounts included in
respect of these subsidiaries are based solely on such Management approved financial
statements. “
For N.C.Banerjee & Co.
Chartered Accountants
(Firm's Registration No. : 302081E)
A Paul
Place: Kolkata (Partner)
Dated: 30th May, 2013 Membership No. 06490
I was tempted then to look at the audit report of the
Australian subsidiaries and someone was kind enough to give me the link.... http://www.asx.com.
The Grant Thornton
audit report, while refusing to even give an opinion on the financials of
the Australian
subsidiaries, says as follows (pages 81-83) :
Grant ThorntonIndependent Auditors’report:
Basis for disclaimer of opinion:
“ We have been unable to obtain sufficient appropriate audit evidence on the books and records and the basis of accounting of the consolidated entity. Specifically we have been unable to satisfy ourselves on the following areas:
i. Valuation and impairment of assets: the consolidated entity obtained an independent valuation of its mining assets and mining licenses. The independent valuation was based on certain assumptions which may no longer be valid . The directors have not obtained an updated independent valuation to determine the extent of the impairment to the carrying value of the mining assets and mining leases. We have been unable to obtain supporting evidence, based on updated assumptions, which would provide sufficient appropriate audit evidence as to the carrying value of the mining assets and mining licenses.
ii. Going concern – the financial report has been prepared on a going concern basis, however the directors have not provided an update of their assessment of the consolidated entity’s ability to pay their debts as and when they fall due. The consolidated entity has reported a loss before income tax of $112,182,825 ( including an impairment charge of $83,792,190 ) for the year ended 31 March 2013 and a working capital deficiency of $407,998,443. At the year end, the consolidated entity is in breach of loan covenants, has significant arrears in arrears and has been unable to provide evidence to support the full amount of the replacement loan facility which is required to pay existing facilities. As discussed in Note 1(c) , the consolidated entity is in the process of re-negotiating financing and has announced a share placement to the market, subject to shareholder approval, for additional equity funding.
We have been unable to obtain alternative evidence which would provide sufficient appropriate audit evidence as to whether the consolidated entity may be able to obtain such financing, and hence remove significant doubt of its ability to continue as a going concern for a period of 12 months from the date of this auditor’s report.
iii. Deferred Tax Assets – included in non-current assets are Deferred tax assets of $87,302,944. In accordance with AASB 112 “Income taxes” , the recognition of deferred tax assets when an entity has incurred tax losses requires convincing other evidence that sufficient taxable profit will be available against which the unutilized tax losses can be utilized by the Group. The directors have not provided sufficient appropriate audit evidence of the Group’s ability to recover these losses.
iv. Recoverability of Trade Receivable - included in Trade Receivables is an amount of $27,795,628 due from the consolidated entity’s ultimate parent company. We were unable to obtain sufficient appropriate audit evidence to determine the recoverability of this receivable. Consequently, we were unable to determine whether any adjustment to this receivable was necessary.
v. Completeness of Contingent Liabilities and Subsequent Events disclosures – we were unable to obtain sufficient appropriate audit evidence to determine the completeness of the contingent liabilities and the subsequent events disclosures. Consequently, we were unable to determine whether any additional disclosures are required to the relevant notes.
vi. To the date of the directors approving the financial statements, we were not provided with sufficient appropriate audit evidence, or time, to finalise our procedures pertaining to various disclosures and transactions contained within the financial report. This constitutes a limitation of scope.
As a result of these matters, we were unable to determine whether any adjustments might have been found necessary in respect of the elements making up the consolidated statement of financial position, consolidated statement of profit and loss, and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows, and related notes and disclosures thereto.
Disclaimer of Opinion:
Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraphs, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial report. …….. "
Grant Thornton Audit PTY LTD
Chartered Accountants
Jain Kemp – Audit & Assurance
Sydney, 15 August 2013
I must confess i have no hope left in our Council.. but i do strongly feel that if no action is taken in this case, none of the members of ICAI should depose before ICAI's Disciplinary Committee, headed by ICAI President - Mr. Subodh Agrawal, who has shamed the profession.
Sincerly,
Arun Giri
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