Mohan R. Lavi

Mohan R. Lavi on some of the practices in half-yearly reporting

IT IS half-yearly reporting time again. Half-yearly results of India Inc are pouring out in compliance with Circular No SMD-II/POLICY/CIR-08/2000 dated February 4, 2000, as amended by Circular No SMDRP/Policy/Cir-II/01 dated February 15, 2001, issued by the Securities and Exchange Board of India (SEBI). Another Circular No SMRDP/Policy/Cir-44/01 was issued dated August 31, 2001, making it mandatory to follow segment reporting and AS 22 on taxes on income. The circular prescribes the format which has to be used to publish these results which needs to be done within a month of the end of the quarter. Listed companies need to be good friends with one daily English newspaper and one regional language paper since not only the date of the meeting to consider the unaudited results needs to be published but also the results themselves.

A `Limited Review' has been prescribed for the half-yearly review by the auditors of the company, but the Limited Review Report uses long-winded terminology which is tantamount to stating that even if something is amiss, do not point the accusing finger at the auditors. For both the half-yearly review and year-end unaudited results, a 20 per cent margin of error has been provided to companies to deviate from the results of the quarters that made up the respective half-year/year-end. Anything in excess of this would have to be explained to the stock exchange.

The same circular seems to provide a way out of this by providing that for the year-end if the company promises to publish audited results within three months from the year-end, there is no necessity to publish the unaudited version of the accounts.

The Circular is silent as to what happens if the audited results are not published on or before June 30, thereby providing an escape route for companies that have breached the 20 per cent norm but have not published the unaudited results.

It is also surprising that only the stock exchange needs to be informed of the 20 per cent deviation and not the shareholders who would probably be keener to know how the company is doing. The circular signs off by stating that quarterly results need to be prepared on the basis of accrual accounting policy and in accordance with uniform accounting practices adopted for all the periods on a quarterly basis.

Published results

A glimpse of the unaudited results published to date provided mixed results. While the software biggies and the major public sector banks probably disclosed more than what needed to be disclosed, other listed companies provided did not seem to be as detailed in disclosure, while some did just what is required. A hotel company based in Chennai did the right corporate governance thing — it got the results reviewed by the Audit Committee although the regulations state that a " sub-committee of the Board" would be par for the course.

A telecom services company based in Mohali made a blanket statement that the results "are subject to limited review" by the auditors which keeps one guessing as to whether the review has been done or not and probably gives a hint to SEBI to provide that the limited review needs to be done before the results are published. A manufacturer of car seats based in Delhi disclosed sales of Rs 68.98 crore for the half-year but added a rider that sales are subject to finalisation of prices with Maruti Udyog. In spite of the requirement to follow AS-22, a ceramic tile company based in UP issued a one-liner that "deferred tax will be provided at the end of the year".

A company based in Hyderabad made a statement that consumption of raw material stores and spares is related to the product mix of the relevant period leaving one wondering what it related to in the previous period. The same company made a self-declaration that segment reporting is not applicable without assigning any reason therefor.

A casting company with registered office in Orissa had the dubious distinction of having one investor complaint pending at the end of the year and, to add insult to injury, this was pending from the beginning of the year. While the SEBI circular asked companies to explain how audit qualifications have been addressed in the unaudited financial results, a heavy engineering company based in Kolkata preferred to state that "Qualifications of the auditors referred in the last audited accounts for the year ended March 31, 2004, have been adequately replied/explained in the respective Notes".

A kitchen appliance company based in Bangalore went hi-tech, asking investors to visit its Web site for updated information. A food company based in Delhi sold off its flour milling business during the half-year but provided so much of information about the sale of the flour milling business that the shareholder would have to do a lot of arithmetic before assessing the performance of the only other division of the company — a snack food division.

With such an eclectic variety of reporting, is the publishing of quarterly/ half-yearly results becoming a routine drill by itself every quarter? A review by SEBI would be worth the while and may provide interesting results.

(The author is a Hyderabad-based chartered accountant.)

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