CARO Audit Report in case of a company where in earlier years, manipulations admitted by the erstwhile management and previous years audit reports withdrawn by earlier auditors
Satyam Computer Services Ltd. — (31-3-2009)
Compiler’s Note:
The main Audit Report of the Company was published in February 2011 (pages 87-92) issue of BCAJ. Given hereunder are relevant extracts from the CARO report. Since disclosures in the Notes to Accounts referred to in the audit report are voluminous, the same are not reproduced here. The same can be made available by BCAS on request.
Annexure to the Auditors’ Report:
(Referred to in paragraph 5 of our report of even date)
(i) Having regard to the nature of the Company’s business/activities/result/transactions, etc., clauses (viii), (xii), (xiii), (xiv), (xix) and (xx) of CARO are not applicable.
(ii) In respect of its fixed assets:
(a) The Company has maintained records of fixed assets showing particulars, including quantitative details and situation of the fixed assets situated within India except that quantitative details, asset description, etc., in respect of some of the fixed assets, need to be updated in the Fixed Assets Register. According to the information and explanations given to us, in respect of the fixed assets situated at the overseas branches of the Company, the Company has not maintained complete records showing the quantitative details and situation of fixed assets.
(b) The fixed assets were not physically verified during the year by the Management. Refer to paragraph 18(c) of the Auditors’ Report also.
(c) The fixed assets disposed of during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company.
(iii) In respect of its inventory:
(a) As explained to us, the inventories were not physically verified during the year by the Management.
(b) Since no physical verification was conducted, reporting on the procedures followed by the Management does not arise.
(c) In our opinion and according to the information and explanations given to us, the Company has not maintained proper records of its inventories during the year, though the required adjustments to account for the inventory in the books of account were made based on the information available with the Management as at the year end. Refer to Paragraph 12(d) of the Auditors’ Report also.
(iv) Subject to the comments in paragraphs 8 and 12(b) of the Auditors’ Report, in respect of loans, secured or unsecured, granted by the Company to companies, firms or other parties covered in the Register u/s.301 of the Act :
(a) With respect to the transactions recorded for the period from 1st April to 31st December, 2008, as the Register maintained by the Company (updated as at that date) has been seized by the Income Tax Department, only photocopies were made available for our verification. Subject to our reliance on such photocopies, the Company has not granted or taken any loans, secured or unsecured, to/from companies, firms or other parties covered in the Register maintained in pursuance of section 301 of the Act, during the period from 1st April to 31st December, 2008.
(b) According to the information and explanations given to us, the Company has not granted or taken any loans, secured or unsecured, to/from companies, firms or other parties covered in the Register maintained in pursuance of section 301 of the Act for the period from 1st January to 31st March, 2009.
(v) In our opinion and according to the information and explanations given to us, there was no adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchases of inventory and fixed assets and the sale of goods and services. During the course of our audit, we have observed several major weaknesses in such internal control system. Refer to paragraph 18(a) of the Auditors’ Report also.
(vi) Subject to the comments in paragraphs 8 and 12(b) of the Auditors’ Report, in respect of contracts or arrangements entered in the Register maintained in pursuance of section 301 of the Act, to the best of our knowledge and belief and according to the information and explanations given to us and subject to our reliance on the photocopies of the Register for the period from 1st April to 31st December, 2008 [Refer Item (iv)(a) above]:
(a) The particulars of contracts or arrangements referred to in section 301 of the Act that needed to be entered in the Register maintained under the said section have been so entered.
(b) There were no transactions in excess of Rs.5 lakhs in respect of any party.
(vii) Subject to our comments in paragraph 8 of the Auditors’ Report, according to the information and explanations given to us, the Company has not accepted any deposit from the public during the year.
(viii) In our opinion, read with our comments in paragraph 18(a) of the Auditors’ Report, the Company did not have an internal audit system commensurate with its size and nature of its business.
(ix) According to the information and explanations given to us in respect of statutory dues:
(a) Whilst the Company has been generally regular in depositing undisputed dues relating to Investor Education and Protection Fund, Wealth Tax and other material statutory dues applicable to it with the appropriate authorities, there were significant delays in depositing undisputed dues in respect of Provident Fund, Employees’ State Insurance, Tax Deducted at Source, Sales Tax/VAT, Works Contract Tax and Service Tax.
(b) There were no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Wealth Tax, Sales Tax/VAT, Service Tax, Cess and other material statutory dues in arrears as at 31st March, 2009 for a period of more than six months from the date they became payable except in respect of Tax Deducted at Source amounting to Rs.171,945 and certain overseas taxes amounting to Rs.866,456. As regards to income tax, we are unable to comment on the dues in arrears as on 31st March, 2009 for a period of more than six months from the date they became payable in view of the matters described under paragraph 14 of the Auditors’ Report.
c) Details of dues of Income Tax, Sales Tax, Service Tax and Cess which have not been deposited as on 31st March, 2009 on account of disputes are given below:
(not reproduced here)
x) The accumulated losses of the Company at the end of the financial year have exceeded the net worth of the Company. Further, the Company has incurred cash losses in the financial year ended 31st March, 2009. For the reasons stated in paragraph 15 of the Auditors’ Report, we are unable to comment on the cash losses for the immediately preceding financial year.
xi) In our opinion and according to the explanations given to us, the Company has not defaulted in the repayment of dues to banks. The Company does not have any dues to financial institutions and has not issued any debentures.
xii) In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the Company for loans taken by some of its sub-sidiaries from banks and financial institutions, as made available to us for our verification, are not prima facie prejudicial to the interests of the Company considering the nature of the guarantees, purposes and needs.
xiii) In our opinion and according to the information and explanations given to us, term loans have been applied for the purposes for which they were obtained, other than temporary deployment pending application.
xiv) In view of our comments in paragraph 8 of the Auditors’ Report, we are unable to comment whether the funds raised on short-term basis have been used during the year for long-term investment.
xv) The Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained u/s.301 of the Companies Act, 1956 during the year.
xvi)To the best of our knowledge and according to the information and explanations given to us, the details of fraud on or by the Company noticed or reported during the year are given below:
a) As stated in paragraph 6 of the Auditors’ Report, there were various financial irregularities which are more fully described in Note 3 of Schedule 18.
b) Various other instances of fraud noticed by the Management involving the employees of the Company/vendors of the Company, the amounts whereof were not material and the same have been suitably dealt with in the financial statements of the Company.
