From Published Accounts

Section B:

–  Report under CARO, 2016  

–  Adverse Report on Internal Financial Controls (IFC)

in a case where main report u/s. 143 of the Companies Act, 2013 is a ‘disclaimer’ report

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

Compilers’ Note: The main report u/s. 143 has been reproduced in January 2017 issue of BCAJ. 

From Report on CARO

(Only clauses with adverse reporting are reproduced) 

The Annexure A referred to in Independent Auditor’s Report to the members of Ricoh India Limited on the financial statements for the year ended 31^st March 2016, we report that:

(i)     (a)   As described in the basis of disclaimer of opinion para 4.B.5 of main report, the fixed assets records of the Company have been updated as at 31^st March 2016 based on partial physical verification. Therefore, the Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets in respect of assets physically verified. However, fixed asset records are not updated for adjustments, if any, in respect of assets not physically verified.

        (b)  During the current year, the Company has performed physical verification of certain fixed assets. In our opinion, the Company needs to strengthen its process for conducting physical verification of fixed assets at reasonable intervals. As explained and represented to us, the Company is considering ongoing fixed asset verification processes on a sample basis. As described in the basis of disclaimer of opinion para 4.B.5 of main report, the shortages have been written-off and the excesses have been recorded as zero value. Since all the fixed assets were not covered by the exercise and the shortages and excesses were not mutually reconciled, we are unable to comment as to whether the material discrepancies noted on such verification have been properly dealt with and on the reasonableness of such verification.

        (c)   Photocopies of title deeds of immovable properties have been examined by us (other than five properties – having a net book value of Rs.14 lakh as at 31^st March 2016 for which even the photocopies have not been made available). Accordingly, we are unable to comment as to whether the immovable properties are held in the name of the Company or not.

(ii)    Not reproduced

(iii)   Except for the effects of the matters described in the basis of disclaimer of opinion para 4A main report, according to the information and explanations given to us, the Company has not granted any loans, secured or unsecured to companies, firms, limited liability partnerships or other parties covered in the register maintained u/s. 189 of the Act.

(iv)   Except for the effects of the matters described in the basis of disclaimer of opinion para 4A main report, according to the information and explanation given to us, the Company has not given any loans, or made any investments, or provided any guarantee, or security as specified u/s. 185 and 186 of the Companies Act, 2013.

(v)    Except for the effects of the matters described in the basis of disclaimer of opinion para 4A of main report, as per the information and explanation given to us, the Company has not accepted any deposits as mentioned in the directives issued by the Reserve Bank of India and the provisions of section 73 to 76 or any other relevant provisions of the Companies Act, 2013 and the rules framed there under.

(vi)   Not reproduced.

(vii)   (a)   According to the information and explanations given to us; on the basis of our examination of the records of the Company; and appearing in the books of the accounts as statutory dues paid/payable, except for the effects of the matters described in the basis of disclaimer of opinion paragraph of main report, amounts deducted/accrued in the books of account in respect of undisputed statutory dues including provident fund, employees’ state insurance, income-tax, sales tax, service tax, duty of customs, value added tax, cess and other material statutory dues have not generally been regularly deposited with the appropriate authorities though the delays in deposit have not been serious. As explained to us, the Company did not have any dues on account of duty of excise.

              According to the information and explanations given to us; on the basis of our examination of the records of the Company; and appearing in the books of the accounts as statutory dues paid/payable, except for the effects of the matters described in the basis of disclaimer of opinion paragraph of main report, no amounts payable in respect of undisputed statutory dues including provident fund, employees’ state insurance, income-tax, sales tax, service tax, duty of customs, value added tax, cess and other material statutory dues were in arrears as at 31^st March 2016 for a period of more than six months from the date they became payable.

        (b)  Except for the effects of the matters described in the basis of disclaimer of opinion paragraph of main report, in particular para 7(g)(i) and according to the information and explanations given to us, there are no dues of income tax, sales tax, service tax and value added tax which have not been deposited with the appropriate authorities on account of any dispute except as mentioned below. As explained to us, the Company did not have any dues on account of duty of excise.

(viii)  Not reproduced

(ix)    Not reproduced

(x)    Attention is invited to note 4A in main audit report wherein it is stated that we have a reason to believe that suspected offence involving a violation of applicable law, which may tantamount to fraud, may have been committed. However, due to the limitations pertaining to investigations elaborated in note 45 of the financial statements read with our comments mentioned in para 4.B to 7 of main report, we are unable to comment on the appropriateness of amounts pertaining to each period over which such transactions continued, the persons involved and the amount of fraud/misappropriation. According to the information and explanations given to us, no other material fraud by the Company or on the Company by its officers or employees has been noticed or reported during the course of our audit.

(xi)   according to the information and explanations give to us and based on our examination of the records of the Company, the Company has paid/provided for managerial remuneration in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Act. However, this is subject to the potential financial impact of findings of investigations which has not been considered for computing the overall limits for payment of managerial remuneration.

(xii)  Not reproduced

(xiii)  Except for the effects of the matters described in the basis of the disclaimer of opinion paragraph of the main report, particularly the impact, if any, of the irregularities and suspected fraudulent transactions which at present is not fully ascertainable, in our opinion and according to the information available as at present and explanations given to us and on the basis of our examination of the records of the Company, the transactions with the related parties are in compliance with sections 177 and 188 of the Companies Act, 2013 where applicable and the details have been disclosed in the financial statements as required by the accounting standards.

(xiv) Not reproduced

(xv)  Except for the effects of the matters described in the basis of the disclaimer of opinion paragraph of the main report, particularly the impact, if any, of the irregularities and suspected fraudulent transactions which at present is not fully ascertainable, according to the information available as at present and explanations given to us and based on our examination of the records of the Company, the Company has not entered into non-cash transactions with directors or persons connected with him.

(xvi) Not reproduced

From Report on IFC

Report on the Internal Financial Controls under Clause (i) of sub-section 3 of section 143 of the Act

We were engaged to audit the internal financial controls over financial reporting of the Company as of 31^st March 2016 in conjunction with our audit of the financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls

Not reproduced

Auditor’s Responsibility

Not reproduced

Meaning of Internal Financial Controls Over Financial Reporting

Not reproduced

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Not reproduced

Adverse Opinion

As described in para 4 of our main report, a large number of irregularities and suspected fraudulent transactions were noted during the year. As described in detail in the aforesaid para these irregularities and suspected fraudulent transactions clearly illustrate that the Company has not established adequate internal financial controls and that whatever financial controls have been established were not operating effectively. While reference may be made to the aforesaid paragraph, the following significant aspects of material weaknesses in internal control system are particularly noteworthy as identified in the investigation reports and by our audit procedures:

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 book adjustment entries etc.

b)   Recording of circular sale 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.

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

d) Absence of an appropriate internal control system to perform periodical reconciliations of advances/balances of customer and vendors.

A ‘material weakness’ is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In our opinion, because of the matters described in the basis of disclaimer of opinion paragraph of main report and in view of the material weaknesses described above, the Company has not maintained adequate and effective internal financial controls over financial reporting as of 31^st March 2016.