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The National Financial Reporting Authority (NFRA), an independent audit regulator, has issued a financial reporting quality review report (FRQRR) on KIOCL Ltd for the financial year 2019-20.
The FRQRR is one component of the NFRA’s inspection programme, and the other is the audit quality review report (AQRR).
This is its first FRQRR for KIOCL Ltd, an official release said. The report focuses on those preparing financial statements and reports under specific accounting standards. It evaluates the chief financial officer and the rest of the management, the audit committee, and the board of directors in their preparation of financial statements that show a true and fair view, as required under the Companies Act and accounting standards.
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The FRQRR is designed to bring out the insufficiencies in financial statements and identify non-compliance with accounting standards. It is, therefore, not to be treated as a rating tool.
NFRA’s conclusions and/or recommendations have been categorised as ‘high’- and ‘moderate’-impact. Some of the high-impact non-compliances it has flagged are (a) KIOCL’s accounting policy for foreign exchange (fx) forward contracts is erroneous and non-compliant with the classification and measurement requirements of Indian accounting standard (Ind AS) 109, Financial Instruments ; (b) The accounting policy for a material element — that is, revenue (with corresponding impact on related assets such as trade receivables, inventories and so on) in its statement of significant accounting policies is erroneous, raising questions on the accuracy of the company’s financial statements; and (c) Adequate evidence, such as valuation reports, if any, have not been provided by KIOCL as per Ind AS 36, Impairment of Assets , for the non-operational blast furnace unit. Also, there is no evidence that impairment loss computations were considered and/or reviewed and/or presented to the company’s audit committee and board of directors (BoD).
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Many other errors have been noticed in the disclosures in the ‘notes to financial statements’. These disclosures are not relevant and have the potential to obscure the material information in the financial statements.
NFRA has recommended that KIOCL examine whether it was necessary to prepare and publish restated financial statements as per Ind AS 8 and Section 131 of the Companies Act, 2013, the release added.
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