By HIMANSHU V. KISHNADWALA
Chartered Accountant
Illustration of Disclosures and Audit
Opinion in case of company under Corporate Insolvency Resolution Process (“CIRP
Process”)
Bhushan Steel Limited
(Year ended 31st March 2018)
From Notes to
Financial Statements
28.
Exceptional items (Rs. in Lakh)
Year
ended Year ended
31st
March, 2018 31st March, 2017
(i) …
(ii) ….
(iii) Other exceptional items 234,732.49 –
Note:
(iii) Other exceptional
items for the year ended 31st March,
2018 include prior period items of Rs. 201,909.65 Lakh comprising of the
following:
a) Amortisation of leasehold land accounted as
operating lease – The Company has taken land properties on operating lease in
earlier years, which earlier were accounted as finance lease. Upon change in
their classification as operating lease, the cumulative effect of amortisation
from inception until previous year ended 31st March, 2017 has
been recognised in current year’s profit or loss in ‘exceptional items’.
Further, these leasehold land properties were recognised at fair value on
transition to Ind AS as on 1st April 2015 and such fair valuation
adjustment has also been reversed in current year’s profit or loss in
‘exceptional items’.
b) Accounting effect of oxygen plant accounted as
finance lease – The Company entered into sale and leaseback arrangement for
oxygen plant in earlier years which was accounted as operating lease. However,
the terms of the lease require such arrangement to be classified as finance
lease. Consequently, the asset has been recognised with corresponding finance
lease obligation. Cumulative effect of reversal of operating lease rentals and
booking of depreciation and finance cost from inception until previous year ended
31st March, 2017 has been recognised in current year’s profit or
loss in ‘exceptional items’.
42. A corporate insolvency
resolution process (“CIRP”) under the Insolvency and Bankruptcy Code, 2016 was
initiated against the Company vide an order of the Principal Bench of the
National Company Law Tribunal (“NCLT”) dated 26th July, 2017.
Subsequent to the year-end, on 15th May, 2018, the NCLT has approved
the terms of the Resolution Plan submitted by Tata Steel Limited (“TSL”), which
provides, inter alia, the acquisition of the Company by TSL, through its
wholly owned subsidiary Bamnipal Steel Limited. The approval of the Resolution
Plan subsequent to 31st March, 2018 has been considered as a
non-adjusting event for the purpose of financial statements for the year ended
31st March, 2018. Pursuant to such approval of the Resolution Plan,
the financial statements for the year ended 31st March, 2018 have
been prepared on a going concern basis.
44. The Company has
defaulted in repayment of debts, redemption of debentures and pay interest
thereon, the Directors of the Company were disqualified from being appointed as
Directors in terms of section 164(2) of the Companies Act. Subsequent to the
year end, pursuant to the NCLT order dated 15th May, 2018, the
erstwhile Directors of the Company are deemed to have resigned/vacated the
office. Hence, none of the erstwhile Directors continue as Members of the
Board.
From Auditors’ Report
Basis for Qualified
Opinion
8. As explained in Note
28(iii) to the standalone financial statements, the Company has accounted for
certain prior period errors in the financial statements for the year ended 31st
March 2018. Under Ind AS 8, “Accounting policies, changes in accounting
estimates and errors”, errors that occurred prior to 1st April 2016
should have been retrospectively corrected by restating the balances of
respective assets and liabilities and equity as at 1st April 2016
and errors that occurred in year ended 31st March 2017 should have
been retrospectively corrected by restating the comparative amounts as at 31st
March 2017 and for the year then ended.
Had the prior period
errors been appropriately accounted for in accordance with Ind AS 8:
- Other non-current assets, non-current
borrowings and other financial liabilities as at 1st April 2016
would have increased by Rs. 18,814.00 lakh, Rs. 89,645.86 lakh and Rs. 2,962.18
lakh, respectively and property, plant and equipment, deferred tax liabilities
and equity as at that date would have decreased by Rs. 121,349.09 lakh,
Rs. 2,775.54 lakh and Rs. 192,367.59 lakh respectively;
- Depreciation, finance costs and deferred tax
credit for the year ended 31st March 2017 would have increased by
Rs. 9,486.52 lakh, Rs. 12,277.82 lakh and Rs. 2,257.94 lakh respectively and
other expenses for the year then ended would have decreased by Rs. 14,997.82
lakh respectively. Accordingly, the loss after tax for the year ended 31st
March 2017 would have increased by Rs. 4,508.58 lakh;
- Other non-current assets, non-current
borrowings and other financial liabilities as at 31st March 2017
would have increased by Rs. 18,571.82 lakh, Rs. 86,074.90 lakh and Rs. 3,570.96
lakh, respectively and property, plant and equipment, deferred tax liabilities
and equity as at that date would have decreased by Rs. 130,835.61 lakh, Rs.
5,033.48 lakh and Rs. 196,876.17 lakh respectively; and
- Exceptional items in the statement of profit
and loss for the year ended 31st March 2018 would have decreased by
Rs. 201,909.65 lakh and accordingly, loss after tax would have decreased by Rs.
196,876.17 lakh.
Further, as at 31st
March 2017, the Company had classified certain financial liabilities as
non-current liabilities even though the Company was in breach of material
provisions of certain long-term loan arrangements and the lenders had not
agreed, before the date of approval of the financial statements for the year
then ended, to not demand payment as a consequence of the breach. Accordingly,
the liabilities towards such lenders had become payable on demand, and in
accordance with the requirements of Ind AS 1, ‘Presentation of financial
statements’, should have been classified as current liabilities. In the absence
of the requisite information, the impact of such misstatement on the balance
sheet as at 31st March 2017 cannot be ascertained.
Qualified Opinion
9. In our opinion and to
the best of our information and according to the explanations given to us,
except for the effects (to the extent ascertained) of the matter described in
the Basis for Qualified Opinion paragraph above, the aforesaid standalone
financial statements give the information required by the Act in the manner so
required and give a true and fair view in conformity with the accounting
principles generally accepted in India including Ind AS specified u/s. 133 of
the Act, of the state of affairs (financial position) of the Company as at 31st
March 2018, and its loss (financial performance including other comprehensive
income), its cash flows and the changes in equity for the year ended on that
date.
Emphasis of Matter
10. We draw attention to
Note 42 to the standalone financial statements which describes the status of
Corporate Insolvency Resolution Process that the Company underwent, which was
subsequently concluded on 15th May 2018. We also draw attention to
Note 28 to the standalone financial statements which describes certain related
exceptional items (other than the prior period errors dealt with above)
recognised during the year ended 31st March 2018.
Our opinion is not
modified in respect of these matters.
From Directors Report
Auditors
…. has audited the book of
accounts of the Company for the financial year ended 31st March,
2018 and has issued a qualified auditors’ report thereon. The qualifications in
the auditor’s report are as given hereunder:
a) The statutory auditors of the Company have
expressed a qualified opinion on the standalone and consolidated financial
results of the Company for the year ended 31st March, 2018. The
cumulative impact of the same on turnover, total expenditure, profit or loss
and earning per share of the Company for the year ended is Rs. Nil, Rs.
2,019.11 crore, Rs. 1,968.76 crore and decrease of Rs. 86.92 per share
respectively. As the qualification pertains to the prior period adjustments in
the financial results for the year ended 31st March, 2018, there is
no cumulative impact thereof on the balance sheet of the Company as of that
date.
b) ….
c) …..
