DLF, Unitech books sketchy on subsidiaries

DLF, Unitech books sketchy on subsidiaries
The Financial Express, February 23, 2009, Page 1

Sunny Verma

Audit trails of subsidiaries of India’s two largest listed real estate companies are running dry. Annual reports of DLF shows the accounts of its subsidiary, Silverlink Holdings Ltd, acquired in January 2008 and having total assets of Rs 2,291.12 crore, have not been comprehensively audited despite the listing requirements of the stock exchanges. Similarly, the annual report of Unitech Ltd show that the financial statements of many of it subsidiaries and joint ventures, with total assets of Rs 541.39 crore, were not audited as on March 31, 2008.

Neither statutory auditors nor the internal auditors have audited the accounts of these subsidiary companies of the real estate majors, the annual reports show. Clause 41 of the listing agreement of the stock exchanges mandate audit of consolidated and standalone accounts by the end of the financial year and a limited audit review at the end of every two quarters. The Institute of Chartered Accountant of India rules also require listed and unlisted companies as well as their subsidiary companies to get their accounts audited.

Incidentally, the DLF subsidiary Silverlink Holding Ltd, in turn, has 74 subsidiaries, 71 of which are incorporated abroad and hold various properties overseas. “Silverlink Holding Ltd was acquired in January 2008, so we could not audit the financial statements in the year ending March 2008,” said DLF CFO Ramesh Sanka. “But subsequently audited accounts are available,” he said.

But the limited review by the audit committee of DLF for the December 2008 quarter makes no mention of any audit conducted by Silverlink Holding’s auditor for the year ended December 2007. It also does not reflect any subsequent audit of the company.

“It (Silverlink Holding Ltd) is in 18 countries. It is very difficult to get the audit done for different countries,” Sanka said. Another official of DLF, asking not to be quoted, said the financial statements of some subsidiaries were not audited due to the time constraint but “that is not significant since DLF has over 200 subsidiaries.”

“The consolidated financial statements include total assets of Rs 2,291.1176 crore, total revenues of Rs Nil and total cash flows of Rs 155.7814 crore, of a subsidiary (Silverlink Holding Ltd), acquired in January 2008, which have not been audited by us or any other auditor,” DLF’s auditor Walker, Chandiok & Co said in its report. “The same are included based on the unaudited consolidated financial statements as at December 31, 2007, adopted by the board of directors of the subsidiary, Silverlink Holdings Limited, and no further adjustment is considered necessary in the consolidated financial as the management has confirmed that no material event affecting the financial position of the subsidiary and its constituents has occurred during the period from January 1 to March 31, 2008.”

Unitech’s company secretary and compliance officer S Ravi Aiyar said the nature of real estate business demands creation of subsidiaries. “Accounts of some of the companies could not have been audited as on the date (of annual report) but subsequently they will be audited,” he said.

These subsequent quarterly reports of Unitech, too, do not mention the subsidiaries whose accounts were not audited in the 2007-08 fiscal year. The total number of these subsidiaries and JVs could not be ascertained. Aiyar said the company has over 10 joint ventures wherein its stake is less than 50%. “In such cases, the responsibility of the audit is with the majority shareholder,” he said.

The statutory auditor of Unitech, Goel Garg & Co, in its report had said that it did not audit the financial statements of subsidiaries and joint ventures having total assets of Rs 541.39 crore and total revenue of Rs 121.79 crore as at 31st March 2008. Their statements were ‘accounted based on unaudited financial results,’ Goel Garg & Co said.

Of the total 316 companies owned by Unitech Ltd, 30 are incorporated abroad. “They are not guided by Indian laws. These are basically SPVs to fund the main business. Their audit standards are different,” Aiyar said.

The DLF stock closed 0.83% lower at Rs 155.05 at the Bombay Stock Exchange on Friday. Unitech ended lower 0.55% at Rs 28.05 at BSE on Friday.

In a report last month, global investment banker Credit Suisse stated that DLF had “significant intangible asset/goodwill on its balance sheet”. Plus, there are significant departures from conservative accounting practices, including material related-party transactions. On a more damaging note, the report said the company has not disclosed detailed accounts of key subsidiaries on a regular basis. About Unitech it questioned the extent of related party transactions of allegedly Rs 350 crore in financial year 2007-08.

An official of ICAI, who wished not to be named, said material and non-material penalties can be imposed under the Companies Act, 1956 on companies that do not adhere to the auditing standards, including presenting audit of all subsidiary companies.

“Every subsidiary company is required to get its financial statements audited, not doing so will be a violation,” said Pavan Kumar Vijay, former president of Institute of Company Secretaries of India.