Kingfisher auditors suggest stronger internal audit system
The auditors of debt-ridden Kingfisher Airlines have said the air carrier needs to strengthen its internal audit systems and have raised concerns over numerous issues including delayed or no-payment of dues.
Making some serious observations about the books of accounts of Kingfisher, the auditors in their report for 2011-12 have said the company has prepared its financial statements on a 'going concern' basis, despite its net worth having been completely eroded.
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"The appropriateness of the said basis is inter-alia dependent on the company's ability to infuse requisite funds for meeting its obligations, rescheduling of debt and resuming normal operations," said the auditors' report, which form part of Kingfisher Airlines' Annual Report 2011-12, being sent to shareholders ahead of their AGM on September 26.
Kingfisher's net loss more than doubled to Rs 2,328 crore in 2011-12, from Rs 1,027 crore in the previous year.
Its total long-term borrowings stood at Rs 5,695 crore as on March 31, 2012, down from Rs 6,306 crore a year ago. Besides, it had short-term borrowings of Rs 2,335 crore at the end of 2011-12, up from Rs 604 crore as on March 31, 2011.
For these loans, the airline has used as security all its movable assets, trademarks, 'goodwill' of the company, credit card and other receivables and a mortgage on Kingfisher House.
The airline has said it expects the government to relax overseas investment norms to allow foreign airlines to pick up equity in domestic players, which would widen its access to equity capital and potential to induct strategic partners.
However, the auditors have drawn shareholders' attention to a number of issues in their report and have gone ahead to say that "the company's internal audit system needs to be strengthened to make the same commensurate with the size and nature of its business."
The auditors have also said that they found adequate internal control procedures for inventory purchases, given the management's view that a large number of purchases are of a special nature without any alternative quotations available.
They observed that it did not notice any continuing failure to correct any major weakness in internal controls, but "internal controls in respect of sale of services and purchase of fixed assets (were) to be strengthened."
The auditors further said the company has defaulted in repayment of loans and interest to banks and financial institutions.
"Delays were noticed in payment of interest and principal on several occasions during the year (2011-12), while putting the estimated unpaid overdues to banks and institutions at about Rs 780 crore as on March 31, 2012. Besides, interest aggregating to over Rs 51 crore for the calendar year 2011 were due to debenture holders as on March 31, 2012."