New Delhi/Mumbai: An audit firm reviewing the books of Reliance Communications Ltd (RCom) at the behest of the department of telecommunications (DoT) has asked the government for a three-month extension of its deadline to complete the audit.
Audit firm Parakh and Co. from Jaipur was contracted in January after brokerage Kotak Securities Ltd first pointed out in July 2008 that RCom, the country’s second largest mobile phone firm by customers, had reported different revenue numbers to shareholders and the telecom regulator.
DoT later expanded similar audits to cover other phone firms such as Bharti Airtel Ltd, Vodafone Essar Ltd, Idea Cellular Ltd and Tata Teleservices Ltd after the Telecom Regulatory Authority of India found discrepancies in the revenues these companies reported. The reviews for the four firms, and RCom, pertain to fiscal 2007 and fiscal 2008.
False claims? Reliance Communications, the country’s second largest mobile phone company by customers, had reported different revenue numbers to shareholders and the department of telecommunications. Ramesh Pathania / Mint
Telecom rules require phone firms to pay part of their licence and spectrum fees to the government as a percentage of revenues, net of charges incurred in interconnecting networks and levies such as service tax. The proportion for such revenue share is 6% for Internet service providers and up to 10% for mobile telephony firms. This makes it profitable for firms to report revenues under heads that entail a lower revenue-share percentage. The rates vary according to circles or licence areas.
Parakh and Co. was to complete the audit by end-June. “They have asked for some more time as they were not prepared for the scale of the audit that had to be undertaken,” a DoT official said on condition of anonymity.
“The firm needs to audit the accounts of RCom as well as its almost two dozen subsidiaries. The telecom company has taken licences under different companies (within the RCom fold) and booked revenues under it,” said a person with knowledge of the development, asking not to be identified because the review is still under way.
A new deadline for the review will emerge on 14 July at a meeting with DoT officials, this person said, adding the audit firm had asked DoT for three more months to complete the review.
RCom didn’t respond to a Thursday email asking for comment. Other audits of phone firms, meanwhile, are in progress. DoT recently turned down a request by Bharti Airtel, RCom’s bigger rival, that only the latest two fiscal years—fiscal 2008 and 2009—be reviewed and not the accounts for 2006-07.
This request—a letter from Bharti Airtel to this effect was reviewed by Mint—has been denied by DoT on the grounds that the “possibility of arbitrage for the year 2006-07 needs to be examined since the licence fee for the long distance segment was reduced from 1 January 2006”, the DoT official said.
DoT had appointed Varma and Varma Chartered Accountants, an audit firm from Kochi, in May to look into the books of Tata Teleservices, but the auditor declined because it had a working relationship with some firms of the Tata group. The department has gone back to the Comptroller and Auditor General, India’s federal auditor, for a new list of empanelled auditors, and is expected to appoint a new auditor within the next 60 days.
Telecom analysts said the progress of the audits was being keenly watched.
“We are awaiting the results of the audit as ultimately that would have an impact on the share price and the evaluation of the company by the shareholders,” an analyst with a Mumbai-based brokerage said, adding that if there was a significant difference in what the auditors found, then it could send the stock price crashing “especially after the Satyam fiasco”.
The analyst, who did not want to be named, was referring to the accounting fraud at tech firm Satyam Computer Services Ltd that came to light in January, leading to the arrest and trial of its then chairman B. Ramalinga Raju and the sale in April of the company to Tech Mahindra Ltd.