NFRA finds errors in KIOCL's financial statements for 2019-20 period

The National Financial Reporting Authority (NFRA) has found errors in the financial statements of KIOCL Ltd for the 2019-20 fiscal and has flagged that the company's accounting policy for foreign exchange forward contracts was "erroneous".

The findings are part of the watchdog's Financial Reporting Quality Review Report (FRQRR) of KIOCL for 2019-20, and is also the first FRQRR issued by it.

KIOCL, a public sector undertaking, is mainly into iron ore mining activities.

The regulator has also recommended that KIOCL examine if it is necessary to prepare and publish restated financial statements as per Ind AS 8 and Section 131 of the Companies Act, 2013.

"The accounting policy for a material element i.e. Revenue (with corresponding impact on related assets such as Trade Receivables, Inventories etc) as stated in its statement of significant accounting policies is erroneous.

"This erroneous accounting policy raises questions over the reliability and accuracy of the financial statements of the company," an official release said on Tuesday.

Further, NFRA pointed out that the company's accounting policy for foreign exchange forward contracts is erroneous and it is non-compliant with the classification and measurement requirements of Ind AS 109, Financial Instruments (Ind AS 109).

Ind AS refers to Indian Accounting Standards.

According to the watchdog, adequate evidence, such as valuation reports, if any, have not been provided by KIOCL in respect of application of Ind AS 36, Impairment of Assets, in the case of the blast furnace unit that was non-operational.

"Also, there is no evidence that impairment loss computations were considered/ reviewed/ presented to the Audit Committee and the Board of Directors (BoD) of the company," the release said.

NFRA has also found many other errors in disclosures in the notes to financial statements. These disclosures are either not relevant or useful to the users of financial statements, and have the potential to obscure the material information in the financial statements, it added.

This FRQRR has been prepared on the basis of examination of the company's financial statements for 2019-2020 and other information sought from the company during the course of the review.

FRQRR and Audit Quality Review Report (AQRR) are the two components of NFRA's inspection programme. FRQRR focuses on the role of preparer, those responsible for the preparation of financial statements and reports in accordance with the applicable accounting standards.

Therefore, the FRQRR evaluates how well the Chief Financial Officer, rest of the management, Audit Committee and the Board of Directors have performed in preparing financial statements.