Birla Power Solutions Ltd has informed that in the limited review report of the Company for the quarter ended December 31, 2007, the Auditors of the Company have made the following observations:
"Attention is invited to the following matters -
1. Internal controls in relation to sales, debtors, sales return, purchases, creditors, purchase returns, production, Inventory, Internal audit and expenditure needs to be strengthened to make the same commensurate with the size of the company and nature of the business.
2. Due to non-availability of audit trail and absence of satisfactory cutoff procedures in respect of:
(a) Sales and sales returns, purchase and purchase returns, Interest income, discounts, rebates & allowances, non- reconciliation of Excise Duty Accounts with the Excise records, non compliance of provisions of Cenvat Credit Rules in some cases and also non adjustment of Sales Tax rates differentials in case of inter depot transfers which in the opinion of the management will be appropriately reconciled / accounted, Auditors are unable to comment on the consequential impact arising out of the same.
(b) Transactions in relation to traded goods entered into by the company and due to absence of confirmation of balance in respect thereof, Auditors are unable to comment on the consequential impact of the same. Moreover no Sales Tax Return is submitted till date in relation to this sale.
3. As no Audit Trail was established, due to non availability of documents at the time of Capitalization of UnitII, therefore the Auditors cannot express their opinion on the depreciation charged amounting to Rs 14.36 Lacs in current quarter.
4. As explained to the Auditors, the company has implemented an ERP (software) package for Inventory accounting in an earlier year. The said package needs updation, which, as explained to them is under progress. Pending completion, Inventories have been ascertained as per book balance only. In the opinion of the management, differences arising out of the said process, including inter shop / inter depot / inter unit reconciliation, determination of obsolete, non-moving, damaged and unserviceable inventory and overhead allocation as per AS-2 (valuation of inventories) would be accounted appropriately on completion thereof. Hence Auditors are unable to comment on correctness and completeness on the Inventory and consumption of Raw Materials, purchase of goods and increase / (Decrease) in stock. Moreover, Net Realizable Value (NRV) was not considered for Valuation purposes which is required as per AS-2.
5. Machinery spares amounting to Rs 44.74 Lacs have been taken into inventories instead of capitalizing the same. (Impact unascertainable)
6. Auditors have relied upon on the management representation stating that UnitII is capable of manufacturing the small generators although there is no documentary evidence to establish this fact.
7. Goods amounting to Rs 137.05 Lacs are appearing in Material in Transit since December 2002 for which no proper explanation was given.
8. Auditors are unable to express their opinion on interest Income on ICDs' amounting to Rs 324.65 Lacs as necessary documents / details / explanations were not available for their verification.
9. The actuarial valuation for the gratuity fund and leave encashment has not been done and it has been considered on ad-hoc basis. Auditors are unable to comment on the compliance of AS-15 (Employee Benefits).
10. Segment Revenue, Segment Results, Segment Assets and Segment Liabilities in relation to Appliances are not in conformity with AS-17 (Segment Reporting) (Ref Qualification II(b) above).
11. In respect of deferred taxes, the Auditors have relied on management perception of virtual certainty and hence not able to comment on the compliance of AS-22 (Accounting for Taxes on Income).
12. Provision for Warranty Claims has been made on ad-hoc basis, which is not in conformity with AS-29 (Provisions, Contingent Assets and Contingent liabilities), (Impact unascertainable)
13. Interest paid, amounting to Rs 58.24 Lacs and Ps 37.77 Lacs on Unsecured Loans and Public Deposit respectively could not be verified as sufficient documents were not made available to the Auditors.
14. There have been instances of non-compliance of the provisions of the Employees Provident Fund and Miscellaneous provisions Act, 1952, Service Tax Act and Non-deduction of Tax deducted at source (Impact unascertainable). Moreover as per company ESI Act, 1948 is not applicable. However Auditors are unable to comment on the same and its consequential impact, if any.
15. FBT amounting to Rs 40.98 Lacs has not been paid till date and also interest on delay not accounted for.
16. Sundry debtors have been taken as per book balance in absence of balance confirmations. Further these debtors includes overdue debtors amounting to Rs 7508.36 Lacs for which, in the opinion of the management, no provision is required to be made as these are good and fully recoverable and based on such representation auditors have placed reliance on the recoverability.
17.(a) Loans and Advances include amount recoverable from a party (assignee) on account of sale of overdue debtor amounting to Rs 1000 Lacs. In the opinion of the management this is good and fully recoverable, however till date no amount have been received, therefore Auditors are unable to comment on the recoverability.
(b) Loans and advances given to / recoverable from certain parties amounting to Rs 1570.60 Lacs (Included in Loans and Advances), which became overdue / recoverable as per terms (including interest receivable thereon amounting to Rs 496.36 Lacs) which has been considered good and recoverable by the management. Based on such representations Auditors have placed reliance on the recoverability.
18. No clarification is given for various Advances made to suppliers approximately Rs 1O79.45 Lacs as on December 31, 2007 and hence the Auditors are unable to comment on the recoverability or otherwise in respect of such advances.
19. Non Capitalization of "Non-Recoverable tooling Advance" amounting to Rs 25.14 Lacs which is not in accordance with AS-10 and thereby Depreciation is also not calculated as per AS-6.
20. The Auditors are unable to comment on the note no 5 to the results for the quarter ended December 31, 2007, with respect to compliance with accounting standards."
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