By Himanshu V. Kishnadwala
Chartered Accountant
DISCLAIMER OF
CONCLUSION REPORT
COFFEE DAY
ENTERPRISES LTD. (CONSOLIDATED)
From Review
Report to financial results for the quarter ended 30th June, 2019
(dated 17th July, 2020)
COMPILER’S NOTE
Post the issue of this report, the then
statutory auditors tendered their resignation to the company citing commercial
considerations. The subsequent auditors appointed to fill in the casual vacancy
also resigned citing technical reasons. For the quarter ended 30th
September, 2019, the next auditors appointed have issued a similar ‘Disclaimer
of Conclusion’ report.
BASIS FOR DISCLAIMER OF CONCLUSION
(a) Auditor of 1 subsidiary which in turn
has 13 step-down subsidiaries and 2 joint ventures (together constituting 38%
of revenue and 1% of profit), based on its review, has expressed an unmodified
conclusion on the underlying unaudited consolidated financial results. The
review report is dated 2nd August, 2019 and is therefore of a date
much earlier than the date of this report.
Auditors of 4 subsidiaries (constituting 51%
of revenue and 36% of profit), based on their review, have issued a disclaimer
of conclusion on the underlying unaudited financial results due to inter
alia: possible impact of the ongoing investigation; non-availability of
listing of transactions and recoverability of balances of ‘advances net of
trade payables’ (including related party); reconciliations / confirmations of
receivable and payable balances, recoverability of receivables.
In our Group Review Instructions, circulated
in accordance with the SEBI Circular issued under Regulation 33(8) of the
Listing Regulations read with SA 600, ‘Using the Work of Another Auditor’, we
raised a number of queries and sought further information and explanations from
the above subsidiary auditors including: impact of ongoing investigation;
compliance with applicable laws and regulations with respect to related party
transactions; impact on account of breaches of debt covenants; consideration of
subsequent events up to the date of this report; amongst others. However, we
did not receive adequate clarifications / responses from these auditors.
The review reports of the Parent Company and
five other subsidiaries reviewed by us (constituting 6% of revenue and 66% of
profit) express disclaimer of conclusion on the underlying unaudited financial
results due to inter alia: possible impact of the ongoing investigation;
listing, compliance and recoverability of related party transactions and
balances; recoverability of capital advances, receivables and other financial
assets; accuracy of taxes; impact of subsequent events to the date of this
report; and the appropriateness of the going concern assumption.
Based on the above, we have not been able to
obtain sufficient appropriate evidence which could support a conclusion other
than a disclaimer for the Group as a whole.
(b) In a letter dated 27th July, 2019
signed by the late Mr. V.G. Siddhartha, the Promoter and then Chairman and
Managing Director of the Parent Company, which has come to light, it was inter
alia stated that the Management and auditors were unaware of all his
transactions. Attention is drawn to Note 11 of the Statement, wherein,
consequently, the Board of Directors have initiated an investigation into the
circumstances leading to the statements made in the letter and to scrutinise
the books of accounts of the Company and its subsidiaries. As of the date of
this report, the investigation is not yet concluded and, thus, the Parent
Company is unable to conclude if there are any adjustments / disclosures
required to be made to the Statement.
Pending outcome of the ongoing
investigation, we are unable to comment on the completeness, existence,
accuracy and appropriateness of the transactions and disclosures of the current
quarter and earlier periods, including regulatory non-compliances, if any, and
any other consequential impact to the Statement.
(c) Sufficient appropriate evidence to
demonstrate the identification of related parties (as defined by the Listing
Regulations, other applicable laws and the Indian Accounting Standard),
transactions with such parties and the resulting balances have not been made
available in the case of many subsidiaries. Similarly, sufficient appropriate
evidence to demonstrate business rationale, propriety, compliance with the
requirements of the relevant laws and regulations for these transactions and
the recoverability of the balances with these parties has not been made
available.
Accordingly, we are unable to comment on the
completeness, existence, accuracy, business rationale, propriety of
transactions with related parties, compliance with applicable laws and regulations,
recoverability of these balances and the consequential impact, if any, on the
Statement.
(d) In case of certain subsidiaries, we have
not received sufficient appropriate evidence with respect to compliance with
debt covenants or details of defaults in repayment of borrowings and consequent
actions, if any, taken by bankers / lenders as provided in the relevant loan
agreements (refer Note 21 of the Statement).
Accordingly, we are unable to comment on the
completeness, existence and accuracy of the borrowings on account of
consequential adjustments that might arise due to non-compliance with debt
covenants.
(e) In case of one subsidiary, sufficient
appropriate evidences for the listing of transactions and recoverability of
balances of ‘advances net of trade payables’ (including related parties)
amounting to Rs. 1,025 crores have not been made available. Additionally, in
case of certain other subsidiaries, the reconciliations / confirmations of
receivable and payable balances have not been received. Further, an assessment
of recoverability of the receivables and other financial assets has also not
been provided.
Accordingly, we are unable to comment on the
completeness, existence and recoverability of such ‘advances net of trade
payables’, receivable and other financial assets, and the completeness and
existence of payable balances.
(f) In case of certain subsidiaries, we have
not received sufficient appropriate evidence of the indicators and the
consequential assessment of impairment of non-financial assets for the quarter
ended 30th June, 2019, i.e., for leasehold improvements, capital
work-in-progress and capital advances aggregating to Rs. 248 crores.
Additionally, at a consolidated level, for
goodwill amounting to Rs. 510 crores we have not received sufficient
appropriate evidence of the indicators and the consequential assessment of
impairment (refer Note 12 of the Statement).
The above impairment assessments are as
required by Ind AS 36, ‘Impairment of Assets’, particularly consequent to developments
during the period, including the pending investigation as discussed in this
report.
Accordingly, we are unable to comment on
whether any adjustments on account of impairment are required with regard to
such non-financial assets, including goodwill.
(g) As detailed in Note 18 of the Statement,
sufficient appropriate evidence is not available to support a subsidiary’s
compliance with section 45-IA of the Reserve Bank of India (RBI) Act, 1934.
Further, the Parent Company and another subsidiary had filed applications
seeking exemption from registering themselves as Non-Banking Financial Company
(NBFC). As at the date of this review report, a response from RBI is awaited.
Accordingly, we are unable to comment on the
compliance with the aforesaid regulations and consequential impact, if any, on
the Statement.
(h) The Parent Company has also received a
notice from the Registrar of Companies, Karnataka, calling for information in
connection with a proposed enquiry under section 206 of the Companies Act,
2013. The Parent Company is in the process of responding to such enquiry.
Pending the outcome of the enquiry and related proceedings, we are unable to
comment on the impact of the same on the Statement.
(i) As explained in Note 8 of the Statement,
a subsidiary transferred a part of its business to its step-down subsidiary
whose parent subsequently became a joint venture. Sufficient justification and
basis of accounting for such transfer and compliance of the same with the
requirements of the Indian Accounting Standards have not been provided.
Accordingly, we are unable to comment on
whether the transaction complies with the requirements of Indian Accounting
Standards and consequential impact on the Statement, if any.
(j) In the case of 1 subsidiary, which in
turn has 13 step-down subsidiaries and 2 joint ventures, reviewed by another
auditor, the relevant review report on consolidated unaudited financial results
is dated much earlier than the date of this report. In the case of this group as
well as for other subsidiaries sufficient appropriate evidence regarding
subsequent events as required by Ind AS 10, ‘Events after the Reporting
Period’, has not been provided, and therefore relevant procedures could not be
performed.
Accordingly, we are unable to comment on the
adjustments, if any, arising from such events in the case of these subsidiaries
which may have occurred in the time period between 30th June, 2019
and the date of this report.
(k) As detailed in Note 19 of the Statement,
the Parent Company and certain subsidiaries have adopted section 115BAA of the
Income-tax Act, 1961 for measurement of its tax expense for the quarter ended
30th June, 2019 at the reduced rates. Since section 115BAA of the
Income-tax Act, came into force on 20th September, 2019 it cannot be
applied for measurement of the tax expense for the quarter ended 30th
June, 2019. Thus, the tax expense is not in compliance with applicable
standards. Additionally, matters listed in the paragraphs above may have a
consequential effect on the Company’s current and deferred tax expense /
(credit) for the current period / earlier periods as well as corresponding
balances as at the reporting date.
Accordingly, we are unable to comment on the
completeness and accuracy of current and deferred tax expense / (credit) for
the current period / earlier periods as well as the corresponding balances as
at the reporting date.
(l) In case of the Parent Company and
certain subsidiaries, the review reports contain a disclaimer of conclusion
relating to going concern; the review reports of certain other subsidiaries
contain a paragraph stating that there was material uncertainty relating to
going concern assumption. However, the management has prepared the consolidated
financial results on a going concern basis as detailed in Note 22. On a
consideration of the overall position and in view of the matters stated in the
paragraphs above, we are unable to comment on whether the going concern basis
for preparation of the Statement is appropriate.
DISCLAIMER OF CONCLUSION
Because of the substantive and pervasive
nature of the matters described in paragraph 6, ‘Basis for
disclaimer of conclusion’, above for which we have not been able to obtain
sufficient appropriate evidence resulting in limitation on work, and in respect
of which the possible adjustments have not been determined, and based on the
consideration of the review reports of the other auditors referred to in
paragraph 8 below, we are unable to state whether the accompanying Statement
has been prepared in accordance with the recognition and measurement principles
laid down in the relevant Indian Accounting Standards and other accounting
principles generally accepted in India, or that the Statement discloses the
information required to be disclosed in terms of Regulation 33 of the Listing
Regulations, including the manner in which it is to be disclosed, or that it
contains any material misstatement. Thus, we do not express a conclusion on the
accompanying financial results.
The task is not to see what has never been seen
before, but to think what has never been thought before about what you see
every day.
—
Erwin Schrödinger (1887 – 1961)
