Over the last four years, Kitex has been the first listed company in India to report its audited financial results (Reporting dates: FY16 – 4th April, FY15 – 6th April, FY14 – 3rd April, FY13 – 4th April). Normally, this would be viewed positively as it is reflective of strong financial controls inside the company.
In order to ratify the accounts, the auditor needs to gather substantive audit evidence which includes – physical inspection of assets (machinery, inventory), obtaining confirmations from third parties (banks, suppliers, customers), examining transaction records, checking assumptions and calculations. Completing all these activities within 3-4 days of the end of the financial year while theoretically possible has several practical challenges (for eg. In FY16, April 1st was a bank holiday followed by a weekend which limits ability to get third party confirmations). Even large audit firms with extensive resources are unable to complete the annual audit in such a short period of time.
Kitex’s auditor is the Cochin-based Kolath & Co which does not audit any listed entity other than Kitex. Given Kolath’s limited experience in auditing large businesses, its ultra-quick completion of Kitex’s audit raises concerns about the comprehensiveness of the audit. While Kitex’s audited results demonstrate a high level of efficiency, its secretarial compliance reports show delays in its filings (P&L, Balance Sheet, Modification of Charge, Changes in Directors) with the Registrar of Companies. Kitex’s selective efficiency in financial reporting is quite puzzling.-from 2Point2Capital