Thursday, March 18, 2010

The Retail Rats...

Yesterday it was Subhiksha. Today it’s Vishal Retail. Auditors are smelling a rat all over the place, not just inside the retail stores. The charge – Books are cooked, inventory depletion happening at an alarming pace. All in the midst of a CDR process in tow.
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Retail is a fantastic sector to book cooks. The characteristic of the business also helps. There is a huge inventory base and is all meant for trading. They don’t manufacture anything and so it’s just sourcing, shelfing and selling. Now that leaves enough scope for spillage, wastage, damage and an issue of age itself in case if the goods are slow moving or just…non-moving.
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The Agarwals of Vishal Retail have played it to the hilt. They raised about Rs.110 crores by IPO in June, 2007 then went on to raise over Rs.800 crores of debt that is now seeking reprieve from lenders. The news was that the lenders have also agreed to finalize a CDR package of Rs.730 crores. Now there is the demand for forensic audit. A la Subiksha scam where ICICI Ventures was an early investor, played along the Board, then Renuka Ramnath, CEO of I-Ventures quit pretending ignorance when she was about to be hauled up for investigation but not before palming off a substantial stake to Azim Premji’s PE fund.
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I say everyone is an accomplice. A fraud of this magnitude, at a very base level (i.e.rapid build-up of inventory and writing it all down in double quick pace cannot happen unless everyone including Auditors, Bankers, Board members all collude. Ordinary investor is the only one that is left off circle. This is bullshit and it should clearly stop.
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Or just do away with Auditing as it exists now. Make the Auditors directly responsible to shareholders – not just making certificates and disclaimers.
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1 comment:

Jim Bauer said...

I've always thought auditors should be completely 3rd party somehow. Arthur Anderson and its association with Enron is a very big example of what can go wrong when both sides are looking the other way.