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Sparkle Ltd, ‘a Rs 143-crore company engaged in the business of mining and processing of precious stones,’ had acquired a tract of land in Zozila and was looking at the prospect of mining zelota…

Thus reads a case study in a recent publication of the Institute of Chartered Accountants of India ( www.icai.org ), Background Material on Auditing and Assurance Standards. In Sparkle’s case, the auditors wanted to see a complete report on the viability of the project which had already cost more than 30 per cent of the company’s total assets.

Xavier, the MD, was in a dilemma whether he should provide the full report, which had doubted the safety of the mine after five years, and was silent about the cost of operations. Also, any controversy could adversely affect Sparkle’s negotiations with the State Government for a mining lease, which were at a particularly delicate state, the MD feared.

“On the other hand, not submitting the detailed report could have serious consequences. After all, casting doubt on the going concern status of the company is the single most serious objection an audit report can raise. Just what are the rights of the auditor in such a situation, wondered Xavier.”

Compulsory addition to the auditor’s shelf.

D. MURALI

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