Dispute on ‘audit opinion’ triggered exit of Coffee Day auditors?

BSR & Associates expressed ‘Disclaimer of Opinion’ 

MUMBAI: B S R & Associates has resigned as the Statutory Auditors of Coffee Day Enterprises with effect from July 17, 2020.

Though the company quoted the auditors as citing ‘commercial considerations’ as the reason for resignation, informed sources attributed it the ‘Disclaimer of Opinion’ expressed by the auditors on the accounts of the company.

Coffee Day Enterprises and Café Coffee Day chain operated by it have been in the news ever since the demise of the storied group chairman VG Sidhartha about an year ago.

‘Disclaimer of Opinion’ is considered a very serious type of audit opinion expressed about a company’s financials compared with other modified opinions such as ‘Qualified Opinion’ and ‘Adverse Opinion’ because through\ Disclaimer of Opinion on a company’s accounts, the auditors seek to state that they are ‘unable to form an opinion’, which has a negative bearing on the company as regards the investors and lenders alike.

The fact that the auditors, who quit the job, were appointed on September 27, 2018 to hold the office for a period of five consecutive years until 2023, has prompted the market to look for reasons beyond ‘commercial considerations’ for their abrupt exit.

However, Coffee Day Group in a regulatory statement said the board has accepted the resignation. The company informed that the Audit Committee/ Board of Directors meeting held on July 17, 2020, have recommended to the shareholders the appointment of Sundaresha & Associates, Chartered Accountants, as the new Statutory Auditors of the Company for five years.

BSR & Associates explained that their arguably damaging audit opinion has been spawned from the substantive and pervasive nature of matters described in the paragraphs explaining the Basis for Disclaimer of Conclusion pinion. (Not incorporating here as it is too long and varied)

The company has generated revenue of Rs927 crore for the first quarter of 2020 (Q1FY20), whereas EBIDTA for the said period was Rs2066 crore and net profit was Rs1618 crore.

The company has explained that EBITDA for the period Q1FY20 included exceptional gain amounting to Rs1,975 crores, whereas the profit after tax ( PAT) or net profit for the period included exceptional gain amounting to Rs1,828 crore on account of sale of equity stake held by the company in Mindtree.

At the same time, the group’s more famous subsidiary Coffee Day Global Ltd (Coffee Business) closed the same quarter with a net loss of 64 crore against a net profit of Rs9.5 crore for the previous quarter (Q4FY19) and a net profit of Rs10.5 crore for the comparable quarter in the previous year (Q1FY19).

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