Independent auditors have pointed out a number of discrepancies in form of qualifications during the audit of Trading Corporation of Pakistan (TCP) for the year 2012-13 (FY13). External auditors, who audited the balance sheet of TCP and the related profit and loss account, cash flow statement and statement of changes in equity together for the year ended on June 30, 2013, have raised some 6 points in audit report that relate to receivables from government institutions, sales tax refund, receivables from sugar mills and income tax liability etc.
Auditors said that except for some matters (reported in paragraph a to f of the audit report), they have obtained all the information and explanations, which were necessary for the purposes of audit. "It is the responsibility of the company's management to establish and maintain a system of internal control, and prepare and present the said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984. While, auditors' responsibility is to express an opinion on these statements based on our audit," the audit report said. Auditors believed that the audit evidence they have obtained is sufficient and appropriate to provide a basis for qualified opinion.
After due verification of the accounts, independent auditors have reported that: (a) Rs 50,669.34 million were receivable as on June 30, 2013 from various government institutions out of which Rs 10,793.12 million have been outstanding for over three years against which no recoveries have been made. In the absence of replies to our confirmation requests relating to these debtors and sufficient/appropriate audit evidence from alternative procedures as to their recoverability, we (auditor) were unable to determine whether any adjustment to the amount of receivables was necessary.
(b) An amounts aggregating to Rs 2,051.59 million were receivable as on June 30, 2013 from six sugar mills which have been outstanding for over three years. The company (TCP) has filed legal cases for recovery of the outstanding amounts in the High Court of Sindh. We (auditor) were unable to obtain sufficient/appropriate audit evidence about the recoverability of these receivables and consequently were unable to determine whether any adjustment to the amount of receivables was necessary.
(c) As on June 30, 2013, sales tax refundable balance as per books of account of the Corporation was Rs 4,233.48 million, whereas according to the sales tax records of the Company ie invoices, goods declarations (GDs) etc provided to auditors by the management, this amount worked out to be Rs 4,683.482 million. The management is in process of reconciling the difference of Rs 450.009 million between the books of account and sales tax records and as such we were unable to determine whether any adjustment to the amount of sales tax refundable was necessary.
(d) According to audit report, as on June 30, 2013, the books of account of the TCP show income tax liability of Rs 1,642.57 million whereas the confirmation received from the tax advisors of the Company shows income tax liability of Rs 418.38 million on that date. The management is also in process of reconciling the difference of Rs 1,224.19 million between the books of accounts and tax confirmation.
The management is reviewing written down values on fixed assets stated in tax depreciation schedule (tax base) which exceed the accounting carrying value of fixed assets (accounting base) by Rs 243.29 million as on June 30, 2013 despite the fact that depreciation rates allowed in tax are higher than the accounting depreciation rates. As such we were unable to determine whether any adjustment to the amount of income tax payable as disclosed in the balance sheet was necessary and whether any deferred tax asset or liability is required to be recorded as difference between accounting base and tax base of operating fixed assets.
(e) A sum of $8.27 million (equivalent to Rs 815.30 million as on June 30, 2013) has been shown as contingent liability and should have been provided in the books of account as Liverpool Cotton Association (LCA) has given foreign award against the Cotton Export Corporation of Pakistan (Private) Limited (now merged with and into the TCP). The Single Bench of the Sindh High Court (SHC) has also decided the matter against the Corporation. However, it has filed appeal in Division Bench of the SHC against the decision of the SHC. In this regard, auditor raised question that "had the said liability been recorded in the books of account of the company, trade and other payables and due from government would have been increased by Rs 815.30 million and there would have not been any impact on net profit and equity of the Company".
f) The Company has not classified 84 godowns given on rent as investment properties due to the reasons stated in the said note. Under the requirements of International Accounting Standard (IAS-40) "Investment Property", these godowns should have been classified as investment properties and their fair market values should have been disclosed in the financial statements.
According to auditors except for the possible effects of these matters proper books of account have been kept by the state run grain trader as required by the Companies Ordinance, 1984 and the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied. Balance sheet, profit and loss account, cash flow statement and statement of changes in equity give a true and fair view of the state of the Company's affairs as on June 30, 2013 and of the profit, cash flows and changes in equity for the year then ended.
The audit report also revealed that the expenditure incurred during the year was for the purpose of the Company's business and the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the Company.
Auditors have also drawn attention that several cases/litigations aggregating to Rs 4,155.79 million were outstanding against the company. The company has filed appeals against these cases which are pending for adjudication. The ultimate outcome of the matters cannot presently be determined, and no provision for any liability that may result has been made in these financial statement and ii) Provision made against obsolete stock amounted to Rs 28.87 million which is included in amounts to be reimbursed by the government.