SES questions Ricoh's audit period

Proxy advisory firm Stakeholders Empowerment Services (SES) has raised serious concerns on Ricoh India, a subsidiary of Japanese major Ricoh Co. In its report, the firm questions the limitation in the period of auditing and upgrading the company’s rating in the absence of financial statement.

“The investigation by auditors (Amarchand Mangaldas & Co, PwC) was limited to the period from April 1, 2015 to September 30, 2015. This indicates that the management believes that the accounts for the period prior to April 1, 2015 are in order, reflecting a true and fair picture of the company’s affairs. How the company be so definite and fraud, if any, started only after April 1,” the SES report said.
 

The report also raised doubts on India Ratings, a credit rating agency that had upgraded Ricoh India non-convertible debentures rating to IND AA- from IND A.

J N Gupta, former executive director of the Securities and Exchange Board of India (Sebi) and the managing director of SES, said: “Sebi must ask a pertinent question - how did the agency upgrade the rating in the absence of accounts / financial statement?”

Adding: “The period for auditing raised suspicion, as it is not definite nor clear when the purported fraud took place.”

In an email response, a Ricoh India spokesperson said, “The company has initiated a forensic investigation based on concerns highlighted by the auditors in their review of the financial statements for the quarter ended September 30, 2015. Further, the company is undertaking an ongoing internal investigation based on the findings of the independent agency’s report. All these developments as well as the summary of the auditors review and the independent agency’s review have been reported through regular voluntary disclosures made by the company to the BSE. We will be able to comment post the completion of the internal investigation.”

These apart, the report also talked about the possible reason behind definite audit period. “Promoters are duly represented in the board and till March 2015, the managing director was from promoter group. Is limiting forensic audit to post 1st April 2015 an attempt to ring-fence promoter MD?” said report.

Besides, half-yearly accounts for the period ending September 2015 compared to the corresponding period of the previous year raises more questions than probable answer. Such comparison creates a doubt on the authenticity and truthfulness of accounts. Investors are unable to find which accounts to rely on, the SES report added.

“It will be in the interest of capital market and investors that Sebi initiates step in the right direction to allay the fears of investors and by swift action ensure that investors’ confidence in the market remains intact. It must be treated as a one-off case rather than widespread malaise,” said Gupta.

The SES report also emphasises certain wrongdoing. “Whether it is just a case of cooking books to show good performance or a case of diversion of funds or siphoning of funds, it is not clear as of now.”

This is not the first proxy firm that had reviewed the Ricoh India profile and its management in near terms. Recently, InGovern, another proxy firm, recommended government-appointed directors on the board of Ricoh India. The firm has also requested Sebi to intervene in the matter. Sources said Sebi was looking into the matter and analysing the proxy firm’s report.

Anil Singhvi, founder director of IIAS and chairman of Ican Investments Advisors, said: “Sebi should ask the management about the loan amount which has increased exponentially. In March 2014, the total borrowing was Rs 367 crore and now it stands at Rs 1,300 crore.”

The issue gained momentum when PwC, appointed by the company’s audit committee for forensic view of accounts, indicated ‘wrong doing’ and an unsupported transaction in the book of account of the company. Besides, the firm has failed to submit its limited review reports to the regulator for two consecutive quarters - September and December 2015. It reported its September 2015 quarter results on May 19 after much delay.