From Published Accounts

Section B:

Disclaimer of Opinion on
account of impact on financial statements due to errors, incorrect accounting
or falsification, fictitious sales, etc.

Ricoh India Ltd. (31-3-2016)
(report dated 18^th November 2016) 

From Notes to Financial
Statements

Note 45

Background of Significant
events

(a)   The
Company in compliance with the provisions of the Companies Act, 2013 appointed
BSR & Co., LLP, Chartered Accountants as the statutory auditors of the
Company on 24^th September, 2015. In compliance with the provisions
of Regulation 33 of the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 (“Listing Regulations”), the Company prepared its financial
results for quarter and half year ended 30^th September 2015. The
statutory auditors as a part of limited review process for the above quarter
raised various suspicions with respect to certain transactions between the
company and its customers and vendors.

      On 14^th
November 2015, the statutory auditors met the Audit Committee of the Company
(“Audit Committee”) and communicated their observations to the Audit Committee.
To seek to expedite the filing of the financial result with the Bombay Stock
Exchange Limited (“BSE”) in accordance with the Listing Regulations, the Audit
Committee decided to engage the services of S. S. Kothari & Mehta,
Chartered Accountants (“SSKM”) to conduct another review of the financial
statements on an agreed upon procedure basis. SSKM submitted its report to the
Audit Committee on 2^nd February 2016 (“SSKM Report”). However, the
statutory auditors did not agree to the scope of the agreed upon procedures and
hence no progress was made.

       Following
the concerns raised by the statutory auditors, the Audit Committee in order to
better understand certain areas where the statutory auditors has raised
concerns decided to appoint Shardul Amarchand Mangaldas & Co., Advocates
& Solicitors (“SAM”) who in turn appointed PricewaterhouseCoopers Private Limited,
India (“PwC”) to conduct an independent investigation into the concerns raised.

        Pending
the investigation by SAM and PwC, the following key managerial personnel of the
Company were sent on paid leave by the Board on 29^th March 2016: Mr.
Manoj Kumar, the Managing Director and Chief Executive Officer; Mr. Arvind
Singhal, the Chief Financial Officer; and Mr. Anil Saini, the Senior Vice
President and Chief Operating Officer. Following the above, on 2 April 2016,
Mr. Manoj Kumar, the Managing Director and Chief Executive Officer resigned
from the board of the directors.

       PwC
issued a “Report on Preliminary Findings’ (“Preliminary Report”) dated 20^th
April 2016. From this Preliminary Report, it was apparent that the concerns
identified and the consequent falsification of the account comprised the
following areas” Out of book adjustments; Revenue recognition issues; Suspect
transactions and Personal type expenditure.

       Upon
receipt of the Preliminary Report, the Company made disclosures and filings
with various regulatory authorities including the BSE, The Securities &
Exchange Board of India (“SEBI”), Ministry of Corporate Affairs (“MCA”) and
also filed a criminal complaint with the Delhi Police to investigate into the
suspected wrongdoings.

       On 18^th
May 2016, the Company published its financial results for the quarter and
half year ended 30^th September 2015. In the disclosures accompanying
the financial results, the Board of Directors stated that the financial results
did not represent a true and fair view of the state of affairs of the Company
and the reasons therefor. The statutory auditors did not provide an opinion in
their limited review report.

       The
Company, with the support of the Audit Committee and the Board of Directors,
continued to address the concerns raised in the financial statements for the
quarter and half year ended 30^th September 2015. It was recognised
that the Company was falling further behind the filings. With the quarter ended
30^th September 2015 accounts only being finalised for filing in May
2016, and with the inability of the Board of Directors to approve these
accounts without significant caveats and concerns, they realised the need for a
change in process. Moreover, given the passage of time and the potential losses
in the accounts it was concluded that there was an urgent need to obtain up to
date reliable financial statements which would be of value to all stakeholders.

        It
was recognised that many of the matters identified in the Preliminary Report
could best be addressed by a team with Ricoh specific knowledge, engaging PwC
where appropriate, so that efficiency and effectiveness was achieved. It was
therefore concluded that an internal investigation (staffed and led
independently of Ricoh India Limited) could be used to complete certain of the
activities.

       The
Company also realised that having already filed a complaint with the Delhi
Police against the suspected wrongdoers (whether known or unknown) who were
already investigating the matter, the investigation with regard to the
individual culpability of the alleged wrongdoers should be best left to
regulatory authorities and the Company should focus on restoration of the
economic value of the shareholders and producing reliable financial results.

    Accordingly,
in early June 2016 a team comprising various Ricoh group representatives, all
of whom were independent of Ricoh India Limited, was established to continue the investigations alongside PwC.

      On 19^th
July 2016 the internal investigation team and the Company presented the
estimated unaudited loss for the year ended 31^st March 2016 of
Rs.112,300 lakh to the Audit Committee. This estimated result was approved and
filed with BSE.

       On 19^th
July 2016, the Promoter Ricoh Company, Limited filed a petition with the
Hon’ble National Company Law Tribunal (“NCLT”) seeking various reliefs but in
particular the re-capitalisation of the Company.

       On 24^th
August 2016 the NCLT issued an Order granting the cancellation of the
shares of either Ricoh Company Limited, or the Co-Promoter NRG Group Limited,
and the preferential issue of the same number of shares for an amount
equivalent to the estimated unaudited loss announced on 19^th July
2016 i.e. Rs.112,300 lakh.

        On 14^th
October 2016, an Extraordinary General Meeting was held that approved the
re-capitalisation by way of cancellation of the shares of NRG Group Limited,
and preferential issue of the same number of shares to NRG Group Limited. On 15^th
October 2016 the board approved the cancellation, issue and allotment for the
consideration of Rs.112,300 lakh.

       On 17^th
November 2016 PwC presented their final report (“the PwC Report”) and the
independent team presented their findings to the Audit Committee. The PwC
Report will be shared with the relevant regulatory authorities including the
NCLT, BSE, SEBI, MCA and the Delhi Police Economic Offences Wing.

       On 18^th
November 2016, the result along with the auditor’s report for the quarter ended
31^st December 2015 and the quarter and year ended 31^st
March 2016 were presented to the Audit Committee. These were subsequently
approved by the board and filed with BSE.

(b)   As a
result of the investigations and the matters identified the Company concluded
that it was impractical, because of limitations in the available documentation,
because of the inability to conclude on the nature of certain transactions and
because of time and cost, to seek approval to restate all financial periods
during which the falsification of accounts had taken place.

        Hence,
the Company has reported the final loss for the quarter and year ended 31^st
March 2016 and separately identified, where possible, the loss relating
to previous periods. Given the nature of the falsification of accounts it is
not possible to fully allocate the falsifications or errors since to do so would
require significant assumptions that would be subjective.

        As a
result of the PwC Report and the internal investigation team analysis, it is
clear that some of the loss for the year ended 31^st March 2016
relates to previous years. Accordingly, in the results for the quarter and year
ended 31^st March 2016 and as detailed in the analysis at note (f)
below reference is made to items where it is clear that the previous year was
impacted. Given that it is not possible to fully allocate the falsifications or
errors due to subjectivity it is possible that further losses may be
attributable to the previous year.

(c)    The
auditors have disclaimed from an opinion on the profit and loss account for the
year ended 31^st March 2016. Therefore, within these financial
statements the directors have sought to explain the falsifications identified
and the periods to which they relate. Such analysis is unaudited but in the
opinion of the Directors is critical to an understanding of the matters
included in these financial statements.

(d)    The
auditors have disclaimed from an opinion on the balance sheet at 31^st March
2016. The Company has sought to satisfy the auditors that the balance sheet
represents a true and fair view but has been unable to do so. The Directors
will file the appropriate statement with BSE stating there is no difference
between the results reported and the results with the impact of the disclaimer
of opinion.

(e)  On the
basis of the matters detailed in point (d) above, and based on the
investigations carried out by PwC and the independent investigation team, and
based on the information available to the directors, the directors believe that
the balance sheet statement as at 31^st March 2016 materially
represents a true and fair view and will form the basis for future reporting.

       The
loss for the year ended 31^st March 2016 and the impact of
falsification of accounts

(f)    The
loss for the year ended 31^st March 2016 can be analysed as follows:

Notes:

(A) One off
adjustments that relate to the year ended 31^st March 2015 and prior
are accounting errors/falsifications that can be attributed to those periods.
These included two main categories: (i) incorrect revenue recognition and
profit recognition on contracts; and (ii) unsupported adjustments that have
been made to inflate profits.

(B) One off
adjustments that specifically relate to the year ended 31^st March
2016 are errors and accounting falsifications that relate to that financial
year. These include unsupported adjustments that have been made to inflate
profits and also provisioning for doubtful debt which can be attributable to
the financial year.

(C) One off
adjustments that cannot be allocated by period are accounting
errors/falsifications that due to their nature cannot be retrospectively
analysed by period. Whilst it is possible that some element of these relate to
previous periods any allocation would be subjective. These include categories
such as: (i) inventory where the Company has had to make significant
corrections and provisions. Whilst it is possible that similar issues existed
at 31^st March 2015, and the ensuing quarter ends, without having
access to detailed inventory verification and records at each of those dates it
is not possible to determine what errors, if any, existed at those date and
hence in which period the inventory errors arose; and (ii) reconciliation and
accounting adjustments where again without being able to recreate all of the
reconciliations and reliable accounting data at each balance sheet date it is
not possible to determine in which period such errors arose.

(g)    Items
included as one off adjustments in the year ended 31^st March 2016
comprise: 

(Amount in Rs. lakhs)

(h)    As indicated, these one off adjustments
and/or accounting falsifications have had a significant impact on the Company.
Given the significance of these matters the Company will work with the relevant
authorities to take action against those responsible. At this time, all such
matters are subject to legal process and consequently it is inappropriate for
the Company to comment and potentially prejudice such action.

From Auditors’ Report

4.    Basis
for Disclaimer of Opinion

A.   Scope of
investigation and impact on opening balances

       Attention
is invited to Note 45 of the standalone financial statements which describes in
a general and overall manner the irregularities and suspected fraudulent transactions
noted during the year. In view thereof, the Company appointed an external firm
along with an internal team (comprising representatives of other Ricoh
companies) to carry out the investigation. Reports of the aforesaid
investigations have been made available for our sighting (on a non-copy basis).

     As a
result of the external and the internal investigation, the Company has recorded
significant adjustments in the current year financial statements as referred to
in Note 45. These relate to recognition of adjustments/transactions which had
remained out of books in earlier periods, disclosure of bank borrowings/bills
discounted, reversal of circular sale and purchase transactions with certain
parties with minimal value addition considered fictitious by the management,
correction of inventory values and provisions of receivable balances considered
doubtful of recovery.

       Investigations
mentioned above have concluded that revenue and cost have been overstated by
Rs.130,476 lakh (including Rs.65,495 lakh pertaining to the current year) and
by Rs.110,544 lakh (including Rs.58,983 lakh pertaining to the current year)
respectively from the inception of business with identified suspected parties.
The difference between revenues and costs of the current year has been
presented on a net basis as a part of other income of current year. Further,
uncollected account receivable balances amounting to Rs.17,542 lakh pertaining
to these parties have been considered doubtful of recovery and provided for as
on 31^st March 2016. Attention is also invited to Note 45 which
summarise the overall impact of findings/adjustments as a result of
investigations.

       Based
on our initial findings, our reading of the Report on preliminary findings
dated 20^th April 2016 of the external investigation team and
communications sent by the Company to various regulatory authorities, we have a
reason to believe that suspected offence involving a violation of applicable
law, which may tantamount to fraud, may have been committed. Accordingly, we
made the necessary reporting to Central Government of suspected offence
involving fraud being committed or having been committed as required by Rule
13(1)(ii) of the Companies (Audit and Auditors) Rules, 2014 [as amended by the
Companies (Audit and Auditors) Amendment Rules, 2015] on 30^th June
2016.

      The
Company has also requested Securities Exchange Board of India (SEBI) to
consider conducting an investigation to ascertain if the incorrect standalone
financial statements had any impact on the securities market and the investors,
particularly under the Securities and Exchange Board of India (Prohibition of
Insider Trading) Regulations, 2015 and the Securities and Exchange Board of
India (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities
Market) Regulations, 2003.

In view of the limitations
pertaining to investigations elaborated in Note 45 of the financial statements
read with our comments mentioned below in para 4.B to 7, we are unable to
comment on the appropriateness of amounts pertaining to each period,
consequential impact thereof on the opening balances as at 1^st April
2015, the persons involved and the amount of fraud/misappropriation, and
consequential impact on these standalone financial statements and
appropriateness of related disclosures.

B.   Non-availability
of information/ documentation/ satisfactory explanations/ justification

B.1  For most
of the documents, originals were not available and hence we had to carry out
our audit procedures on photo copies of those documents, to the extent made
available to us.

B.2  In
relation to Statement of Profit and Loss, we were not able to complete our
audit procedures due to non-availability of required information/documentation/
satisfactory explanations. This includes non-availability of audit evidence to
support certain sale and purchase transactions such as carriers’ receipts,
goods received notes, proof of delivery, customer acknowledgment, effective
cut-off and sales return procedures; and non-availability of significant
information pertaining to other income, employee benefit expenses, other
expenses, related disclosers in notes to accounts etc.

       Further,
in respect of revenue contracts due to non-availability of complete
documentations / sufficient information, the management has accounted for such
contracts on the basis of significant assumptions Accordingly, in view of
aforementioned limitations, we are unable to comment on appropriate accounting
of revenue recognised for these contracts, completeness of provision towards
onerous contracts, evaluation of potential impact of the irregularities and
suspected fraudulent transactions of such contracts.

B.3  In
respect of inventories:

i)   the
Company has not maintained proper records including reconciliation of goods
purchased/sold in terms of quantity and value. Further, the reasons for
material discrepancies noted during the physical verification have not been
investigated.

ii)  confirmation
for inventories lying with third parties and documentation for movement of
goods from one location to another currently valued at Rs.4,761 lakh was not
available;

iii)  Net
Realizable value (NRV) analysis in respect of goods valued at Rs.8,608 lakh has
not been provided.

     Therefore,
we are unable to comment on possible adjustment of these, if any, to the
carrying value of inventories.

B.4  In
respect of receivables for machines given on lease, we were not able to
complete our procedures due to non-availability of complete
documentation/details e.g. absence of lease contracts/details and reconciliation
of amount collected till 31^st March 2016 / amount due as at year-end
and analysis of nature of lease such as operating lease vs finance lease etc.
Further, basis checking of limited number of samples made available to us, we
have observed inaccuracies/ inconsistencies in details used for computation of
lease receivable as at year end such as fair value of lease, lease terms,
computation of interest rate implicit in the lease etc.

       In
view of abovementioned observations, we are unable to comment on the carrying
value of lease receivables balances sand appropriateness of lease income
recognised for the year.

B.5  During
the current year, the Company has performed physical verification of certain
fixed assets. As per the physical verification report provided to us, fixed
assets of gross value of Rs.2,661 lakh against total gross value of Rs.13,914
lakh have been physically verified. Further, basis this physical verification
report, the Company has written off assets having carrying value of Rs.700 lakh
(Gross value Rs.2,988 lakh) to the Statement of profit and loss. Similarly,
assets physically found and not appearing in FAR, have been recorded at zero
value in the fixed assets register. In the absence of complete reconciliation
of assets physically verified with fixed assets register, we are unable to
comment on appropriateness of amounts written off and carrying value of assets
recorded at zero value. Further, as the management has not performed a complete
physical verification of all fixed assets, we are unable to comment on the
existence of such assets and consequential adjustments, if any, and the impact
thereof on the carrying value of such fixed assets.

B.6  We were
not able to complete our balance confirmation procedures in relation to
customers and vendors due to incomplete / incorrect addresses resulting in
non-delivery for balance confirmation letters for certain selected parties,
non-receipt of responses from most of the parties and unreconciled/unexplained
differences for confirmations received. In view of these read along with our
comments mentioned in para B.2 above and considering that the Company does not
have process in place to perform periodical reconciliation of balance with
customers and vendors, we are unable to comment on recoverability of account
receivable balances and advance given to suppliers and completeness of account
payable balances.

B.7  In
respect of following account balances, we were not able to complete our audit
procedures due to non-availability of information/ documentation/ satisfactory
explanations:

      In
view of above, we are unable to comment on appropriateness of these balances.

B.8 The
Company has not made the following disclosures required by the Schedule III of
the Companies Act, 2013 and those required by the applicable accounting
standards:

i)   Warranty
expense, provision for warranty and related disclosure

ii)  Components
of Deferred tax

iii)  Consumption
of stores and spares

iv) Specific
disclosures required by AS-7 Construction contracts

v)  Complete
disclosure for Operating leases

     In
view of our observations in paras A to B.8 above, we are unable to determine
the adjustments, if any, that are necessary in respect of the Company’s assets,
liabilities as on balance sheet date, income and expenses for the year, the
elements making up the Cash Flow Statement and disclosures in the notes to
accounts.

5.    Disclaimer
of Opinion

        Because
of the significance of the matter described in the Basis of Disclaimer of
Opinion paragraph, 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 standalone financial statements.

7.    Report
on Other Legal and Regulatory Requirements

(ii)    As
required by section 143(3) of the Act, we report that: 

a.  as
described in the Basis for Disclaimer of Opinion paragraph, we were unable to
obtain all the information and explanations which to the best of our knowledge
and belief were necessary for the purpose of our audit; 

b.  due to
the possible effects of the matters described in the Basis for Disclaimer of
Opinion paragraph, we are unable to state whether proper books of account as
required by law have been kept by the Company so far as appears from our
examination of those books; 

c.  the
Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement
dealt with by this Report are in agreement with the books of account as
maintained;

d.  due to
the possible effects of the related matters described in the Basis for
Disclaimer of Opinion paragraph, we are unable to state whether the Balance
Sheet, Statement of Profit and Loss and Cash Flow Statement comply with the
Accounting Standards specified u/s. 133 of the Act, read with Rule 7 of the
Companies (Accounts) Rules, 2014;

e.  on the
basis of written representations received from the directors as on 31^st
March 2016, and taken on record by the Board of Directors, none of the
directors is disqualified as on 31^st March 2016 from being appointed
as a director in terms of section 164(2) of the Act. However, as informed to
us, the aforementioned representation has not been received from the
ex-Managing Director of the Company. 
Accordingly, we are unable to comment as to whether such director is
disqualified as on 31^st March 2016 from being appointed as a director
in terms of section 164(2) of the Act; and

f.   with
respect to the adequacy of the internal financial controls over financial
reporting of the Company and the operating effectiveness of such controls,
refer to our separate report in “Annexure B”, and

g.  with
respect to the other matters to be included in the Auditor’s Report in
accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in
our opinion and to the best of our information and according to the
explanations given to us:

i)   In view
of the related matters described in para 4 Basis for Disclaimer of Opinion, we
are unable to state whether Note 28 to the standalone financial statements
discloses the complete impact of pending litigations on the financial position
in the standalone financial statements of the Company;

ii)  In view
of the related matters described in para 4 Basis for Disclaimer of Opinion, we
are unable to state whether the Company has made provision, as required under
the applicable law or accounting standards, for material foreseeable losses, if
any, on long-term contracts including derivative contracts;

iii)  There
has been no delay in transferring amounts, required to be transferred, to the
investor education and protection fund by the Company.

From Directors’ Report

Disclosures

(iv)  DETAILS
IN RESPECT OF FRAUD REPORTED BY THE AUDITORS U/S. 143(12) OF THE COMPANIES ACT
2013 OTHER THAN THOSE REPORTABLE TO CENTRAL GOVERNMENT

      On 5^th
May 2016, BSR & Co. LLP, Chartered Accountants, the statutory auditors of
the Company reported to the Audit Committee u/s. 143(12) of the Companies Act,
2013. This report of the statutory auditors was made on the basis of the review
of BSR & Co. LLP of the report of preliminary findings by
PricewaterhouseCoopers Private Limited, India (PwC) dated 20^th April
2016. The Audit Committee responded to BSR & Co. LLP on 15^th
June 2016 confirming their understanding that the concerns raised were in
accordance with the issues identified in the PwC report of preliminary
findings.

       Following
the conclusion of the Company investigations (as fully detailed in Note 45) of
the financial statements, the Company has filed its financial statements for
the year ended 31^st March 2016. Set out in Note 45(f) and 45(g) of
the financial statements are details of the one-off adjustments that the
Company has identified as being attributable to accounting errors and or
falsifications.

    Given
the significance of the one-off adjustments and/or accounting falsifications
the Company will work with the relevant authorities to take action against
those responsible. At the date of this Report all the matters are subject to
legal process and consequently it is inappropriate for the Company to comment
and potentially prejudice such action.

(vii) EXPLANATIONS
OR COMMENTS BY THE BOARD ON EVERY QUALIFICATION, RESERVATION OR ADVERSE REMARK
OR DISCLAIMER MADE BY THE STATUTORY AUDITOR IN HIS REPORT AND BY THE COMPANY
SECRETARY IN PRACTICE IN HIS SECRETARIAL AUDIT REPORT

       As
included in pages 74 to 82 the statutory auditors have issued a disclaimer of
opinion on the financial statements for the year ended 31^st March
2016 on the basis that they have not been able to obtain sufficient appropriate
audit evidence.

     The
Directors have filed on 18^th November 2016 with BSE Limited a statement
of impact of audit qualification. In this statement management, have confirmed
that they believe that there is no impact and that, based on their analysis and
assumptions, the balance sheet at 31^st March 2016 is materially
correct.

       The
Directors acknowledge that the circumstances for the statutory auditors are
challenging, in particular as a result of the falsification of accounts during
the year ended 31^st March 2016. The Directors would draw the
followings points to your attention:

a)    Whilst
the auditors have had to rely in part on photocopies the directors have no
reason to believe that such copies are not a true reflection of originals. The
Company has instituted improved document retention strategies, and in line with
the core business offering of the Company, will increasingly move to scan and
or copy documents to minimise the cost and impact of document management.

b)    Whilst
the auditors have raised documentation concerns on the profit and loss
statement, the approach taken by the Company has been to ensure that the
balance sheet at 31^st March 2016 is materially correct. As a result
the profit and loss account is the cumulative difference between the audited
balance sheet at 31^st March 2015 and the balance sheet at 31^st March
2016. The Directors concluded that this was the most reliable way of moving
their investigations forward and would allow the Company to produce reliable
profit and loss statements going forward. It would also enable to scale of
losses and actions required to be identified as quickly as possible.

c)    The
Directors acknowledge that their accounting for major contracts is based on
their discussions with the contracted parties and assumptions regarding the
outcome of such contracts. This is normal business practice. The Directors are
aware of the need to improve the contractual documentation and are working to
ensure that this is addressed.

d)    The
Directors have valued inventories in accordance with physical stocktakes rolled
back to 31^st March 2016. It is the Directors view that the overall
level of inventory provisioning is adequate.

e)    For
finance lease contracts the Directors acknowledge the need to improve document
retention (see above) and are working on this. Based on the calculations
performed the Directors are of the view that the material balances contain
within finance lease contracts are adequately confirmed and accounted for.

f)    The
Directors have corrected the fixed assets register. In the period, we have not
carried out a 100% verification but have confirmed the existence of material
assets.

g)    In
respect of Debtors, Creditors and various account balances, the Directors
recognise that the auditors have not received all of their confirmations.
However, based on the management analysis and documentation, the Directors are
of the view that such balances are materially correctly stated.

h)    The
Company have invested significant time in confirming the balance sheet at 31^st
March 2016. In the period from 19^th July 2016 when the
estimated unaudited loss for the year ended 31^st March 2016 was
announced as Rs.1,123 crore to the date of the financial statements on 18^th
November 2016, significant reconciliation and verification was undertaken. The
impact was a reduction in the reported loss of Rs.5 crore i.e. the reported
loss for the year ended 31^st March 2016 was Rs.1,118 crore.

       The
Directors are of the view that the Balance Sheet as at 31^st March
2016, is materially true and fair and forms the basis for future reporting.

      The
Directors will ensure that the accounting policies are followed consistently
such that the results reported, regardless of the audit disclaimer, will going
forward be a reflection of the Company’s operating performance.

      The statutory auditors have also raised
matters in their report on Internal Financial Controls. These are summarised
with our comments as follows:

a)    Deficiencies
in maintenance of books of accounts and documentation including
non-availability of original documents, recording of unsupported and back dated
transactions, out of books adjustments entries etc.

      These
issued primarily related to the falsification of accounts. Specific controls
have been put in place to ensure backdating is no longer possible and that out
of book entries (journals) are minimised and, if necessary, are fully
validated, properly documented and approved. The Company is also improving its
documentation management and retention processes. Significant progress has been
made in this regard though inevitably gaps for prior periods will take time to
close.

b)    Recording
of circular sales and purchase transactions considered fictitious by the
Management, non-maintenance of appropriate inventory records including
quantitative reconciliation of goods purchased and sold and physical
verification of inventory at regular interval.

       This
issue primarily relates to the falsification. Controls are now in place to
ensure the independence of sales, finance and account administration.  Inventory controls have also been enhanced
and regular verification processes implemented.

c)    Non-maintenance
of complete records and documentation for machines given on lease at
transaction level and fixed asset records.