Mumbai: Wiser after the Rs7,136 crore accounting fraud at Satyam Computer Services Ltd that triggered India’s biggest corporate governance scandal, audit firms seemingly don’t want to take chances with any company.
Wockhardt Ltd, India’s sixth largest drug firm by sales, had to postpone the release of its fourth quarter and annual earnings early this week because the firm’s auditors could not finalize the accounts in time, said a person familiar with the development.
The process was delayed as the auditors did not have some vital information related to foreign exchange losses incurred by the firm, and some businesses that are likely to be restructured or divested, said the person, who didn’t want to be named.
To be sure, the audit firm is not sensing any scam here. All it is asking for is adequate data to complete the process. SR Batliboi and Co., an affiliate of Ernst and Young India Pvt. Ltd, is Wockhardt’s auditor.
Price Waterhouse, a unit of PricewaterhouseCoopers, one of the four big accounting firms globally, was the auditor of Satyam Computer, whose founder B. Ramalinga Raju in January confessed to cooking the company’s books over several years. Two partners of Price Waterhouse, S. Gopalakrishnan and Srinivas Talluri, were arrested in January for their alleged failure to carry out a proper audit.
When Mint contacted Rajiv B. Gandhi, president of corporate finance and information at Wockhardt, in the afternoon, he requested that he be called back in an hour. He did not respond to subsequent calls.
Wockhardt follows a January-December calendar year. It has deferred the announcement of its annual results for 2008 twice. It now plans to do this on 25 April.
“Adequate information regarding forex losses were not shared for the audit purpose. Since the information were not satisfactory to the auditors, they refused to sign off,” said another person, who did not want to be identified because of the sensitivity of the issue.
Yet another person familiar with the matter said: “In the last leg of the (audit) process, certain key information was required for completing the audit. The audit firm realized that it might not be possible to get them at the last moment as the company’s priority was on the business and debt restructuring efforts... Since it is an annual audit, the information required to complete the process is quite extensive and it was decided to postpone it by another three weeks instead of a few days.”
Wockhardt had recorded forex losses on account of its exposure to derivatives as well as mark-to-market, or MTM, losses in the previous quarters. MTM is an accounting practice of valuing in asset in accordance with its market value and not the cost at which which it was bought.
Wockhardt, which is under financial pressure with a mounting debt burden, plans to sell some its assets and as well as restructure businesses including foreign subsidiaries to meet its immediate liabilities. The company has Rs3,400 crore of liabilities, including foreign currency convertible bonds worth $140 million that are to be redeemed by September.
The drug maker has referred itself to the corporate debt restructuring or CDR cell of its main banker, ICICI Bank Ltd. A firm usually approaches the CDR cell when it is under financial pressure. The CDR cell is expected to come out with a debt recast package in the next 45 days.
Habil Khorakiwala, Wockhardt’s main promoter and long-serving chairman and managing director, relinquished the office of managing director this week. His younger son Murtaza Khorakiwala is the new managing director. The senior Khorakiwala, however, remains chairman.