KSEB financials deviate from Accounting Standards: Auditors

THIRUVANANTHAPURAM: Kerala State Electricity Board Ltd (KSEB), the state’s ‘sole power supplier’, has reported a net profit of  Rs184.35 crore for the quarter ending June 30, 2024 compared with a net profit of Rs102.28 crore for the same period last year and a net loss of Rs18.86 crore for the previous quarter (Q4-FY24).

However, the auditors of the KSEBL, referring to notes 3-14 to the quarterly financial statements, have categorically stated that the company has presented its financial information in deviation from Indian Accounting Standards (IND-AS) specified under Section 133 of the Companies Act 2013.

“This may have resulted in the improper representation of the company’s performance for the period under review,” the auditors have added.

Auditors red-flag accounts

Though the auditors have red-flagged this issue numerous times in the past, it has had little impact. This is despite the fact that KSEB was required to restate its accounts after being instructed to do so by the Comptroller and Auditor General of India (CAG) a few quarters ago.

In the past, auditors had raised concerns about the financial statements of Kerala Bank too. The bank’s auditors had red-flagged several issues, including the ever-greening of loans. However, as noted by a cooperative veteran, “A bank in the cooperative system would find it impractical to operate without certain long-standing practices like ever-greening of loans.”

Borrowings down

While the total borrowings of KSEB have dropped marginally from Rs18, 292.89 crore as of March end, 2024 to Rs17,390.85 crore towards June end, 2024, the ‘negative’ net worth has further worsened from Rs32,479 crore to Rs33,123.78 crore during the same period.

This is against the share capital of Rs3,499.05 crore.  As per the details available, KSEB has the largest negative net worth among all state-owned entities.

The contribution of accumulated losses towards the negative net worth of KSEB is to the extent of Rs10,961.39 crore, whereas Rs25,661.44 crore could be attributed to ‘other items of Other Comprehensive Income (OCI).

Revenue up

While the revenue for the period under review improved by 18 per cent from Rs5,330.36 crore to Rs6,291.32 crore year on year (YoY), the total income increased from Rs5,445.98 crore to Rs6,460.94 crore as of June end, 2024.

Purchase of power has been the largest expense as always been, and the expenditure on this count has soared from Rs3,101.69 crore to Rs4,005.16 crore, reflecting an increase of about 30 per cent year on year (YoY).

Employee cost, which has always been a debating topic for the public, has in fact, contracted marginally from Rs1,172.70 crore to Rs1,090.69 crore between the two quarters under review.

Issues red-flagged

Though there are several issues about which auditors have raised concerns, a few of them are as follow:

The company has carried out actuarial valuation of the retirement benefits using the work of an Actuary and assessed the actuarial loss for the quarter ended 30 June 2024 as Rs1,052.81 crore;

The company is not following ‘componentisation’ approach for accounting of assets as mentioned in Ind-As 16 Property Plant and Equipment.

The provisions for impairment of financial assets are computed without considering the security collected and without detailed assessment of expected credit loss {ECL} of trade receivables.

The company has not recognised the deferred tax liabilities or deferred tax assets, if any, as required by the Ind-AS 12 “Income Taxes”, thereby understating the Deferred Tax Liability/Assets as may be applicable, and the corresponding impact on tax expenses.

The company has not completed the reconciliation in respect of Goods and Services Tax (GST) as per the books of accounts and the periodical returns filed. Hence the effect of such non-reconciliation, if any, on the liabilities and expenses could not be quantified.