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Saturday, 03 March 2012 17:27
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Govt must probe what Veritas says about DLF

Not surprisingly, given the mauling its shares have taken after the report by Canadian research firm Veritas, DLF’s management has termed the report mischievous. While the corporate affairs ministry secretary says no audit has been ordered into DLF’s accounts recently—he also refuses to confirm if one was ordered earlier—the charges made by Veritas are certainly serious enough to warrant a probe into the books of accounts.

DLF is no stranger to bad analyst reports, including a downgrading by credit rating firm Crisil in December, but the Veritas report is different. Like other analysts, Veritas too has talked about DLF’s failure to sell off assets fast enough to reduce its debt mountain, but the burden of its song is that DLF’s accounting standards have been ‘aggressive’, as a result of which DLF has inflated sales by at least R11,236 crore between FY07 and FY11 and its profits before tax by R7,233 crore over the same period—in addition, it also questions DLF’s transactions with DAL, a company owned by DLF’s promoters, prior to its acquisition by DLF. Keep in mind that Veritas was one of the first to highlight how broke Kingfisher was—so it does have an impressive track record.

The ministry, or even the capital market regulator, is not expected to be able to unearth every dubious accounting practice on its own, but when allegations are made, the least you expect is a serious investigation into them. Keep in mind how, some years ago, when Kotak research pointed out the difference in the accounts being presented to the telecom regulator (for purposes of calculating licence fees) and to company shareholders, the telecom ministry ordered special audits and found many of the points raised to be correct.

Sebi has just formed a separate team to do forensic accounting as part of its corporate finance department, and it is high time the Department of Company Affairs also made a practice of doing such forensics on accounts of companies on a random basis. If what Veritas has said about DLF’s accounting is correct, perhaps it’s also time to re-examine what the Companies Bill proposes on auditing norms—instead of rotations of auditors which actually gives an auditor less time to even understand the workings of a company, concurrent audits may be a better idea. Veritas curat, truth cures.



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