KOCHI: KSEBL has received a sharp audit shock: its auditors have issued an 'adverse opinion' on the company's FY25 financial statements, saying the problems identified are material and pervasive enough to prevent them from concluding that the accounts present a true and fair view.
The verdict is particularly significant because auditors have raised several of these concerns in earlier years as well. What has changed is the severity of the conclusion made by the auditors.
The FY25 auditors have raised concerns across several major areas of KSEBL's accounts, especially the ownership records of the company's landed assets worth several hundreds of crores of rupees.
No records available
One of the most striking relates to land and other fixed assets. KSEBL did not make available records, including title deeds and ownership details, for its landed properties.
The auditors consequently said they could not establish the existence, ownership and possession of those properties or determine whether the recorded fixed assets were complete.
The auditors also questioned KSEBL's accounting of inventory. Its software did not provide the information required to establish inventory value, while the company was valuing inventory at cost rather than at the lower of cost and net realisable value as required under Ind AS 2.
Trade receivables are another concern. KSEBL had not implemented a system for reconciling or confirming receivable balances, leaving auditors unable to determine what adjustments might be required. They specifically warned of a risk of material misstatement in the consolidated financial statements.
The auditors have also questioned the accounting treatment of a Rs494.29-crore Government grant, saying its recognition as income/receivable had the effect of inflating profit by that amount.
Red-flags ignored
What makes the FY25 opinion particularly noteworthy is that several of these concerns have been appearing in KSEBL's accounts for years. KSEBL itself has acknowledged that many qualifications from the previous year continued, even as it said corrective measures had been initiated.
Thus, the FY25 story is not about new accounting problems suddenly appearing at KSEBL.
It is about old problems accumulating to the point where auditors have now moved from saying “except for these matters” to saying the financial statements as a whole cannot be relied upon as presenting a true and fair view.
And FY25 is relevant precisely because it is the latest audited financial year available; The FY26 accounts are yet to be finalised and audited.
The question now is whether KSEBL can use FY26 to resolve the long-running weaknesses — particularly those concerning asset records, inventory, receivables and financial controls — and move its audit opinion back from adverse to qualified, and eventually to unmodified.
