McNally Bharat Engineering Company Ltd has informed BSE that in the limited review report of the Company for the quarter ended December 31, 2007, the Auditors of the Company have made the following observations:
“1. Attention is drawn to the following:
(i) Adjustment for deferred taxation as per requirements of Accounting Standard - 22 on Accounting for Taxes on Income issued by the Institute of Chartered Accountants of India has not been considered in the referred statement of Unaudited Financial Results for the quarter ended December 31, 2007.
(ii) In view of the prolonged non-conclusive status of the power project set up by Jayamkondam Lignite Power Corporation Ltd (JLPC) in which the Company was a Co-promoter, the Auditors are unable to comment on the recoverability of the investment amount due from JLPC amounting to Rs 1,08,06,995.
(iii) The impact of the Accounting Standard (AS) 15 (revised) on Employee Benefits issued by the Institute of Chartered Accountants of India which has become applicable with effect from April 01, 2007, if any, on certain accrued employee cost, is yet to be ascertained and accounted for.
The consequential impact of the above on the profit for the quarter ended December 31, 2007 is not ascertainable.
2. In the absence of relevant information, the Auditor unable to comment on the views expressed by management in their Note No.12 to the Unaudited Financial Results for the Quarter Ended December 31, 2007 stating that the Project business is subject to quarter to quarter variations and one quarter’s performance in isolation does not necessarily indicate full year’s performance.
3. For the quarter ended December 31, 2007, Net Sales / Income from operation is understated by Rs 983 lakhs, Decrease in WIP / CIP is understated by Rs 121 lakhs, Consumption of Raw Materials is understated by Rs 359 lakhs, Outsourcing expenses for Job work is understated by Rs 560 lakhs, Other expenditure is understated by Rs 154 lakhs, and the Operating Profit before tax is overstated by Rs 162 lakhs. Provision for taxation is understated by Rs 80 lakhs approximately for the quarter ended December 31, 2007. All the above variations from the published figures alongwith other variations which were not material has resulted in a more than 10% variation in the Profit after tax for the quarter ended December 31, 2007.
4. The Company has not disclosed how the qualifications, by the Auditors in respect of the limited review report for the quarters ended June 30, 2007 and September 30, 2007 have been addressed in the Unaudited Financial Results for the quarter ended December 31, 2007 or the steps which the Company intends to take in the matter.
Further, in respect of the observations in the limited review report, the management has clarified as follows:
1. Regarding item 1(i) of the said report, the Management would like to explain that as per standard practice of the Company the deferred tax calculation is done on the basis of yearly audited profit of the Company. Hence the same has not been considered in the quarterly accounts.
2. Regarding item 1(ii) of the said report, there has been no change on the status regarding the amount due from JLPC amounting to Rs 1,08,06,995/-. However, the Company is hopeful of recoverability of the investment in view of the ongoing discussion, with Neyveli Lignite Corporation who is the new Promoter of JLPC and who happens to be an old customer of the Company.
3. Regarding item 1(iii), as per the practice, the impact is calculated on an annual basis and the effect, if any, is given at the point of actual valuation.
4. Regarding point No. 3 of the said report, during the quarter under review, while making the actual accounting, certain variations were noted on sales, change of CIP consumption of raw materials and out-sourcing expenses The Company operates in multiple sites, which are remotely located from the Corporate Office, and hence at the time of compilation of the unaudited results actual accounting figures from the sites are not always available and hence the Company has to depend on best available estimates. However, necessary adjustments have been made in the final accounts which are subject to limited review. The consequential impact of the above adjustments in profit for period of 9 months is only 4% which is well within the permissible limit of 10%.”
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