Were there any questions pointed at the Auditor Deloitte? Just asking this to know the confidence level of Deloitte on this company
I hope there was some representative of DSP Black rock.Were there any questions from them?
DSP -I donât know ! But the auditors were present and no questions were directed towards them apart from the fact that the investors in general wish to see them auditing the subsidiaries as well.
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âAt todayâs annual general meeting, which was barred for the media, the CMD & CEO, Suresh Venkatachari, had a tough time convincing shareholders about various allegations against the company.â
Shoot the messenger.All your problems will get solved.
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In my opinion, resignation of Mr. S. R. Ramani, CFO of 8k miles, is very positive sign for the company as his activity in the market and other financial activities of the company lead to such down fall of the price. Further, It is not desired that he is again buying back his shares in this company as this may make investors again suspicious about the activity of the company; the unsecured loan of Rs. 37.50 crores from him may also be repaid as soon as possible. Gradually bringing back the confidence of investors may be one of the top most priority.
As the company is doing very well under the CEO Mr.Suresh Venkatachari, the new CFO should very cautious about all the financial transactions of the company and everything should be in black and white.
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Comments by CARE Ratings vide their report dt28 Sepâ18.
All instruments outlook Revised to Negative
The negative outlook reflects the likelihood of material misstatement in the consolidated financials of 8K miles as highlighted by the statutory auditors of the company in FY18 Annual report. The auditors has expressed qualified opinion in terms of material weakness identified in the companyâs internal financial controls over financial reporting as at March 31 2018 with regard to adequacy and operating effectiveness of the managementâs oversight and review of financial information and book closing procedures at the subsidiaries.
Rating Rationale
The revision in ratings assigned to the bank facilities and instrument of 8K Miles Software Services Limited (8K Miles) takes cognizance of resignation of statutory auditors of â8K Miles Media Private Limitedâ which is a related party to 8K miles having two common promoter directors. The previous auditor âM/s. GHG Associatesâ have accused the management of 8K Miles Media Private Limited of misusing the firmâs letter head, seal and the signature of the firmâs partner in 9 outward direct investment (ODI) certificates submitted by the company to the bank to transfer the funds equivalent to Rs.46.12 crore overseas to M/s 8K miles Media Holdings Inc. on various dates during the period June 21 2017 to March 28 2018. Further, there is a sharp decline in the share price of 8K Miles during the period June 2018-September 26 2018.
Looks certainly headed to SEBI.
Page 135 of AR
âWe have considered the material weakness identified and reported above in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated Ind AS financial statements of the Company for the year ended 31 March 2018, and the material weakness does not affect our opinion on the said consolidated Ind AS financial statements of the Company.â
If it had to go to SEBI it would have gone by now, 5 month onâŚ
Yes.The technically correct insofar as 2018 is concerned. He is not expressing any opinion of earlier years though he has rectified asset clasification substantially in 2016 and 2017.The AR of 2017-18 has the rectified balance sheet of 2016,2017 and 2018 called it âinadvertentâ error.That is a mild term.He did not go into P&L of earlier years for any change there will attract retribution from CLB and SEBI.If the CFO, accountant, auditor, audit committee and Board did not know of these errors , What were they doing ?If the person inadvertently classified a goodwill as intangible or tangible asset, what was his competency or incompetency in classifying a revenue exp as an asset, or a liability as an income.
The reclassification of the inadvertly classified amounts mentioned on AR page 187 do not have a material impact on the P&L as they are reserve/equity reclassifications. If you believe they have an impact on the P&L, please articulate the impact and educate us.
Further these are not gross violations of the listing obligations or accounting standards and hence SEBI or CLB will not waste their time on this. If they were cognizable violations in any manner, Deloitte had an obligation to report it, and Deloitte has signed off on them without specific opinion or modification.
The CFO has resigned for his incompetence and I donât think there is any further need to catastrophizeâŚ
Unsecured loan should not be returned to Mr. Ramani instead in case of any problem in recovering outstanding from 8K Miles Media, it should be adjusted against that money.
We should remember that subsidiary are audited in USA. USA regulators IRS, FBI take forging of accounts very very seriously. I think investors should keep in mind that subsidiary of 8K Miles are in US and not some unregulated tax haven.
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Yes. True. Hope all of their subsidiaries are audited by Deloitte sooner. Did they say yesterday that the consolidated results would be announced in two weeks?
I have couple of basic questions.
-
Can an Indian auditor audit accounts of a US based subsidiary? I mean in a legal sense. Has there been a precedent?
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What if the subsidiary is not breaking any US law and their tax statements there are real but the numbers reported here arenât?
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Siddharthadhamankar
You re-read the last three lines of my previous posting.
Page 187
First aspect
If errors are inadvertent they affect all accounts.If errors are only by design, they relate to reserve/equity.Deloitte has only highlighted errors relating to B/S and not that errors are only limited to B/S
Now the more important questions. Deloitte has redrawn the balance sheet of 2106/2017 and 2018.They are auditors for the Indian listed entity.All errors in accounts amended by them relate to US co.USA based cos can only be audited by CPAâs in US. How did Deloitte make the changes in consolidated accounts.
Were the amendments also made in the US subsidiary books by the auditor there or only were made in the Indian books. This will be known when subsidiary accounts are released for last three yearsDid the subsidiary auditor disallow them to alter the P&L?
The US subsidiary is a pvt unlisted co and has no borrowings or listed to be governed by SEC.The audit is limited to tax compliance and audit of pvt cos is lax.The US auditor has fulfilled his duty when he obtains a âmanagement Representationâ owning responsibility for adhering to all laws, standards, practicesâŚAnd pvt co. limits his responsibility.
Second aspect
The Indian auditor goes by the US auditor and has no say in anything.Even a grave doubt can be overridden by a management assurance.
Third aspect
Now Haresh has resigned as auditor of 8K media and made serious allegations of forgery.He was also auditor of 8k miles.As they move to civil and criminal courts serious charges and countercharges are going to be thrown.What incendiary evidence the previous auditor possess we do not know.If Deloitte has made changes to accounts during the previous auditors term, he will have his own version.
There is nothing more to catestrophise the CFO.That is already done .Now the skeletons need to be hidden safely.
The SEBI action will begin now for apart from CFO selling his shares, charges of forgery in associate co, changes in previous years accounts by Deloitte,downgrading by rating agencies have all happened in the last two weeks.
The drama will unfold now.You can bury your heads in sand like a ostrich and ignore the problem or be alive to what is yet to unfold.
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#phreakv6
They cannot.The US subsidiary is a unlisted, pvt company without borrowings and caters only to tax laws. So as long as the co pays tax more than what it earns the US revenue dept is more than happy.
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So, how can they state that all their subsidiaries would be audited by Deloitte in the AGM? And it is also mentioned that their US subsidiary would publish its results in 2 weeks. So this could also be unaudited?
@pravindran and @phreakv6 This link will help clarify your questions on audit requirements for ODI. You can directly go to Section B - Annual Performance Report point 4 then read up the remaining for more context.
https://taxguru.in/rbi/annual-compliances-foreign-exchange-management-act-1999-insight.html?amp
Also read points 4 through 6 in this link
http://www.mca.gov.in/MinistryV2/accounts+and+audit.html
Bottom line is, all subsidaries are required to be audited as per local law but it is not mandatory to attach accounts of the foreign subsidaries to the holding companies consolidated results.
With regards to deloitte auditing all subsidaries⌠8k miles US will be audited by Deloitte US (which is a legally separate entity from Deloitte india) Deloitte US may subcontract some portion of the work to Deloitte India if they so desire. Ditto for 8k miles UAE etcâŚ
In the AGM I think they said that they will now make public, detailed audited accounts of subsidaries which is not mandatory as per law. @udayp can you please confirm thisâŚ
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Couple of things to clarify on the discussions above and some more information:
- On the question of subsidiary financials, CEO stated that he was hearing this concern from many investors (including large investors) and they have already formed a team working out a plan to make the subsidiary financials more transparent (making Deloitte sole auditor for all subsidiaries is an option they are looking into). I donât think they are at a stage where they figured out the exact legal structure.
- On 2 week time line for publishing subsidiary accounts: My understanding is that they will upload FY2017-2018 reports of the subsidiaries in two weeks. These were audited by Venkataramana associates an audit firm in US. For the current quarter and coming quarters, they will announce the plan in the coming days.
- They hired Adfactors to handel investor relations. This is one of the largest PR firm in India with clients including Tata group and TCS. My perception is that Adfactors will have done some due diligence before accepting 8K miles as their client. PR firms donât take any random company as their client because their USP is their reputation.
- On the 100 cr loan given to 8K miles media: CEO stated that more than 50cr was already paid back in this year and by December, whole amount will be paid back. They wonât make any related party transactions going forward. He also explained why the loan was given in the first place. Couple of years back, he thought Media could be a potential vertical of 8K miles similar to Healthcare, Fintech etc, but he later realized that healthcare is growing fast and media will be tangential and a distraction.
- CEO has also clarified on âinfrastructure cost being less in US than Indiaâ: 70-80% of US employees work at client locations and they donât own âserverâ like infrastructure as the infrastructure is mainly Amazon and Google Cloud so they are opex not capex.
- They are looking at tax efficient ways to bring profits back to India including the option of consolidating the business in Singapore and not US as Singapore has better tax treaties with India. They are in initial discussions with Singapore govt which includes a corporate tax rate of 8% for the company (this is far less than US corporate tax rate).
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I read the dropping criteria for trade to trade segment and the the first line says the dropping criteria apply if market cap is above 500cr. The rate at which 8k miles price is dropping, its mcap is going to be much lower than 500cr on the review date which is 11th october.
Does this mean that 8k miles does not qualify for dropping and will be up for review on only in jan19, till then it remains in t2t?
Also, does anyone have a gut feel on what bottom the share might reach?
It seems that it will take time.