The Members of THE MYSORE PAPER MILLS LIMITED
This report is supplementary to our earlier audit report dated 3rd September 2014 inlight of the revision of financial statements consequent to the audit observations of theComptroller and Auditor General of India. This report supersedes our earlier audit reportdated 3rd September2014.
Report on Financial Statements:
We have audited the accompanying financial statements of THE MYSORE PAPER MILLSLIMITED ("the Company") which comprise the Balance Sheet as at March 31 2014and the Statement of Profit and Loss and the Cash Flow Statement for the year then endedand a summary of Significant Accounting policies and other explanatory information.
Managements Responsibility for the Financial Statements:
Management is responsible for the preparation of these financial statements that give atrue and fair view of the financial position financial performance and Cash Flow of theCompany in accordance with the Accounting Standards referred to in sub-section (3C) ofsection 211 of the Companies Act 1956 ("the Act")read with general circular15/2013 dated 13th September 2013 of the Ministry of Corporate Affairs inrespect of Section 133 of the Companies Act 2013. This responsibility includes thedesign implementation and maintenance of internal control relevant to the preparation andpresentation of the financial statements that give a true and fair view and are free frommaterial misstatement whether due to fraud or error.
Our responsibility is to express an opinion on these financial statements based on ouraudit. We conducted our audit in accordance with the Standards on Auditing issued by theInstitute of Chartered Accountants of India. Those Standards require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on theauditors judgment including the assessment of the risks of material misstatement ofthe financial statements whether due to fraud or error. In making those risk assessmentsthe auditor considers internal control relevant to the Companys preparation and fairpresentation of the financial statements in order to design audit procedures that areappropriate in the circumstances but not for the purpose of expressing an opinion on theeffectiveness of the entitys internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of the accountingestimates made by management as well as evaluating the overall presentation of thefinancial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion.
Basis for Qualified Opinion
1. As stated in note 2.12(b) Company has not identified the non moving stores& spares and has made the provision of Rs.640.86 lacs for the same on adhoc basisinstead of making provision on determined non moving stores and spares as stated insignificant accounting policy 1.02 (iv). In the absence of details the impact of the sameon the financial statement of the company can not be quantified.
2. As stated in Note 3.03 Rs.201.47 lacs interest on purchase tax is notprovided in the books. Hence the loss for the year and other current liability is understated to that extent.
3. An alleged fraud on the company perpetrated by an employee reported duringthe year vide office memo FPR/507/DSP/2013-14 dtd: 28/10/2013 and 5/ 2/2014 amounting toRs.48.05 lacs for the years 2008 to 2014. The alleged fraud is not reflected in the booksof the company pending finality of the enquiry. Hence we are unable to quantify the impactof the same on the financial statements of the company for the year
4. Reference is drawn to Note 3.06 wherein no provision has been made towardsthe disputed interest amounting to Rs.1042.86 Lacs. As a result Loss for the current yearis under stated to that extent and correspondingly the current liabilities is under statedto that extent.
5. During the year the company has accounted and capitalized Interest andGuarantee Commission amounting to Rs.287.35 Lacs on loan borrowed towards Rotary Lime KilnProject. As the said project's active development is interrupted the same should have beencharged to profit and Loss Account instead of debit to Capital Work in Progress. Due towhich Loss for the year is under stated to that extent and Capital work in progress isoverstated to that extent.
6. The Consequential effect of the above comments on financial Statements to theextent ascertainable is understatement of loss by Rs.1531.68 Lacs understatement ofCurent liabilities by Rs.1244.33 Lacs and overstatement of work in progress by Rs. 287.35Lacs.
Subject to observations stated above in our opinion and to the best of our informationand according to the explanations given to us the financial statements give theinformation required by the Act in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India:
a) In the case of the Balance Sheet of the state of affairs of the Company as at March31 2014; and
b) In the case of the Statement of Profit and Loss of the Loss for the year ended onthat date and
c) In the case of Cash Flow Statement of the cash flows for the year ended on thatdate
Emphasis of Matter
1. Attention is drawn to Note 3.11 (Employee Benefits) wherein deficit betweenplan assets and actuarial liabilities of employee benefit plans under gratuity and leaveencashment obligations are substantial. As the company is sick and referred to BIFR thecompany has not stated its plan to meet this deficit.
2. The company is incurring cash losses continuously and net worth of thecompany is fully eroded. However in the opinion of the management the company is a goingconcern as the Govt. of Karnataka (GOK) the main promoter has been continuouslysupporting by way of financial assistance. The company believes that Government ofKarnataka will extend financial support in the coming years also. The rehabilitationproposal for revival of the company is under preparation.
3. The confirmations of Sundry Debtors Creditors & Advances received areyet to be reconciled (note 2.13 (a)). The company has not received confirmations frommajority of the parties though confirmation letters have been sent by the company.
Our opinion is not qualified in respect of the above matters
Report on other legal and regulatory requirements
1. As required by the Companies (Auditors Report) Order 2003 ("theOrder") issued by the Central Government of India in terms of sub-section (4A) ofsection 227 of the Act we give in the Annexure a statement on the matters specified inparagraphs 4 and 5 of the Order.
2. As required by section 227(3) of the Act we report that:
a) we have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purpose of our audit;
b) Subject to our observations stated in the Basis for Qualified Opinion in ouropinion proper books of account as required by law have been kept by the Company so far asappears from our examination of those books
c) The Balance Sheet Statement of Profit and Loss and Cash Flow Statement dealt withby this Report are in agreement with the books of account.
d) Subject to our observations stated in the Basis for Qualified Opinion in ouropinion the Balance Sheet Statement of Profit and Loss and Cash Flow Statement complywith the Accounting Standards referred to in subsection (3C) of section 211 of theCompanies Act 1956 read with the General Circular 15/2013 dated 13 September 2013 of theMinistry of Corporate Affairs in respect of Section 133 of the Companies Act 2013 and
e) On the basis of written representations received from the directors as on March 312014 and taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2014 from being appointed as a director in terms of clause (g) ofsub-section (1) of section 274 of the Companies Act 1956.
| ||For M/s MNS &Co. |
| ||Chartered Accountants |
| ||Firm Reg. No. 003968S |
| ||Sd/- |
|Place: Bengaluru ||(CA NAGABHUSHAN K.S.) |
|Date: 25th November 2014 ||Partner. |
| ||Membership No. 025390 |
TO THE MEMBERS OF THE MYSORE PAPER MILLS LIMITED
Referred to in Paragraph 1 of our report of even date
i) The Company has maintained proper records showing full particulars of quantitativedetails and situation in respect of fixed assets.
ii) The Company has a regular program of physical verification of plant and machinery& vehicles only. In our opinion the periodicity of physical verification isreasonable for these assets having regard to the size of the Company and nature of itsassets. Accordingly the fixed assets were verified by the Management during the year andaccording to information and explanations given to us no material discrepancies werenoticed on such verification.
iii) The Company has not disposed off substantial part of fixed assets during the year.
iv) According to the information and explanations given to us the Management of theCompany has conducted physical verification of Inventory during the year except forstanding crops which is estimated on yield-based formulae.
v) In our opinion the procedures of physical verification of inventory followed bymanagement is reasonable & adequate having regard to the size of the Company andnature of its business.
vi) In our opinion the Company is maintaining proper records of inventory andaccording to the information and explanations given to us the discrepancies noticedduring physical verification are not material in nature and the same have been properlydealt with in the books of account of the Company.
vii) According to the information and explanations given to us the company has neithergranted nor taken any loans secured or unsecured to/from Companies firms or otherparties covered in the register maintained under section 301 of the Act.
viii) In our opinion and according to the information and explanations given to usthere is an adequate internal control system commensurate with the size of the Companyand the nature of its business with regard to purchase of inventories and fixed assets andfor the sale of goods and services. We have not observed any major weakness in theinternal control system during the course of the audit except in the case of labourpayments made by cash towards captive forest plantation activities.
ix) According to the information and explanations given to us there are no transactionsthat need to be entered in pursuance of section 301 of the Companies Act 1956.
x) According to the information and explanations given to us the Company has notaccepted any deposit from the public. Therefore the provisions of clause (vi) ofparagraph 4 of the Order are not applicable to the Company.
xi) In our opinion and according to the explanations and information given to us theCompany has an internal audit system commensurate with the size and nature of itsbusiness.
However timely compliance is not done and the monitoring has to be more effective.
xii) The maintenance of cost records has been prescribed by the Central Governmentunder section 209(1) (d) of the Companies Act 1956. According to the information &explanations given to us such accounts and records have been made and maintained by theCompany.
xiii) According to the information and explanations given to us the Company isgenerally regular in depositing undisputed statutory dues including Provident FundInvestor Education & Protection Fund Employees State Insurance Income tax VATService Tax Custom Duty Excise Duty Cess Wealth Tax and any other statutory duesapplicable with the appropriate authorities except VAT & CST of Rs. 1355.19 lacs andPurchase Tax on sugar cane amounting to Rs 498.50 lacs are outstanding for a period morethan six months from the date they became payable.
xiv) According to the information and explanations given to us there are no disputeddues in respect of Income Tax VAT Wealth Tax Customs Duty Excise Duty Cess exceptservice Tax of Rs.49.00 lacs for which the appeal is pending before the Commissioner ofcentral Excise and Service Tax.
xv) The accumulated losses of the Company as at the end of financial year are more than50% of its net worth and the company has incurred cash loss during the current financialyear and in the immediately preceding financial year.
xvi) On the basis of verification of relevant records and documents and according tothe explanations and information given to us the Company has defaulted in repayment ofdues to financial institutions Banks & Debenture Holders as below:
|Sl. No. ||NAME ||Defaulted Amount ||Default since |
| || ||Rs. In lacs || |
|1. ||Axis Bank Limited ||997.91 ||30-09-2010 |
|2. ||SBM ||4765.53 ||01-07-2012 |
|3. ||SBI ||3796.36 ||01-07-2012 |
|4. ||Karnataka Bank ||130.72 ||01-07-2012 |
|5. ||Indian Bank ||1944.30 ||01-07-2012 |
|6. ||Vijaya Bank ||1120.77 ||01-07-2012 |
Note: Interest on all loans accounted up to 31-03-2014.
xvii) According to the information and explanations given to us the Company has notgranted any loans and advances on the basis of security by way of pledge of sharesdebentures and other securities.
xviii) The Company is not a chit fund or nidhi or mutual benefit fund Company and hencethe provisions of the same are not applicable to the Company.
xix) The Company is not dealing or trading in shares securities debentures and otherinvestments.
xx) According to the information and explanations given to us the Company has notgiven any guarantee for loans taken by others from bank or financial institutions.
xxi) In our opinion and on the basis of information and explanations given to us thefund raised through Bonds of Rs. 50 crores in July 2010 out of which Rs. 42.92 crores hasnot been applied for the purpose for which it has been obtained.
xxii) On the basis of review of utilization of funds which is based on overallexamination of the Balance sheet and cash flows of the Company related information asmade available to us and as represented to us by the Management in our opinion theCompany has not utilized the funds raised on the short-term basis for long-terminvestments.
xxiii) The Company has not made any preferential allotments of shares to parties andCompanies covered in the Register maintained under section 301 of the Companies Act 1956.
xxiv) According to the information & explanations given to us and the recordsexamined by us the debentures/bonds have been issued against Govt. of Karnatakaguarantee. Hence no security or charge is created.
xxv) The Company has not raised any money from public issue and hence the disclosure ofthe same is not applicable.
xxvi) According to the information and explanations given to us and on the basis ofexamination of records an alleged fraud perpetrated by an employee was reported duringthe year vide office memo FPR/507/DSP/2013-14 dtd: 28/10/2013 and 5/2/2014 amounting toRs. 48.05 lacs for the years 2008 to 2014.
| ||For M N S & CO. |
| ||Chartered Accountants |
| ||Firm Regn. No. 003968S |
| ||Sd/- |
|Place: Bengaluru ||(CA. NAGABHUSHAN K.S.) |
|Date: 25th November 2014 ||PARTNER |
| ||Membership No: 025390 |