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Pantaloon: On top of the piling debt burden, its auditor has pointed out to wrongful treatment of some expenses

The retail giant’s profits may be hurt as it adopts IFRS from FY12, which involves making provision for customer loyalty programs. Some auditor qualifications in its accounts are also a cause for concern

The piling debt burden may not be the only worrying aspect for shareholders of Pantaloon Retail. What could raise eyebrows higher is the treatment of certain expenses by the retailer, which has also attracted qualifications by its auditor. And with the mandatory migration to International Financial Reporting Standards (IFRS) just round the corner, the company could possibly get hit slightly on its bottom-line. 

Several wrongful treatments in the books of accounts of the company have even led its auditors to make qualifications in their report, according to a report by BRICS Securities. In the first instance, Pantaloon's auditors pointed out that the company, in its consolidated financials for the year ended 30 June 2009, recognised deferred tax assets by certain subsidiaries and joint ventures amounting to Rs46.4 crore, which led to profits being reported that much higher.

The report also points out that the company revised its method of valuation of finished goods for the year ended 30 June 2008, and that the same has been adjusted against brought forward balance in the profit & loss account. In doing so, reported profit for this period was higher to that extent.

The report has also found that there is a significant variation on treatment of expenditure on brand development between Pantaloon and its peers. Pantaloon, which spends a substantial amount on advertisements has capitalised the expenditure incurred on the same. However, none of its peers have the same practice. In fact, Pantaloon's auditors have qualified their report stating that "capitalising brand expenditure and treatment of royalty and advertisement expenditure as pre-operative by certain subsidiaries is not in accordance with accounting standards".

BRICS Securities points out in the report that Pantaloon may need to provide for its loyalty programs under the IFRS since over 50% of its sales come from loyalty card members. "With a higher proportion of sales from Green card members, Pantaloon will have to make provision for its loyalty program which will impact net income," says the report. Currently, provisions in the Indian Accounting Standards do not require companies to account for rewards accrued under loyalty programs. 

However, from fiscal year 2012, companies with a net-worth exceeding Rs1,000 crore will have to migrate to the IFRS, which includes provision for customer loyalty programs. Pantaloon's management, however, has signalled that they may not be required to make any such provisions as their program does not provide any freebies for shopping at their stores and only gives discounts.



Nagesh KiniFCA

6 years ago

suggest you forward this report to the professional development committee of the Inst of CAs of India to get the reaction of the auditors' apex regulator and Union Ministry of Corporate Affairs too.

k a prasanna

6 years ago

The future group is a bubble. It will burst one day.

Nagesh KiniFCA

6 years ago

pantaloon accounts - another case of corporate mis-governance!
what are the mandatory responses in the directors report to the qualifications, more particularly what has the audit committee to say? is it a cut, paste and copy repeating what appeared in the earlier report?


nagesh kini

In Reply to Nagesh KiniFCA 6 years ago

already commented a little while ago.

RBI concerns to be addressed before CCI's merger notification

New Delhi: The government today said it will take on board the concerns of the finance ministry and the Reserve Bank of India (RBI) before giving powers to competition watchdog Competition Commission of India (CCI) for vetting mergers of banks, reports PTI.

The RBI has been seeking exemption of bank mergers from the purview of the proposed sections of the Competition Act, which would require all acquisitions that could have a bearing on competition in the market, to seek its go-ahead.

"It is in the process, there is no intention to delay but these are government procedures that have to be followed.

The finance ministry and the RBI have to be taken on board, as they have some issues which will be considered," corporate affairs minister Salman Khurshid told PTI on the sidelines of 'Competition Law Conference 2010' here.

Mr Khurshid's comments comes amid talks that notification of sections 5 and 6 of the Competition Act may take a while, as it is facing opposition from the finance ministry and the RBI on certain issues. The two sectors empower the CCI to look into big market-impacting mergers and acquisitions (M&As).

However, voices within the commission have expressed concern that exempting one sector would lead to similar demand from other sectors.

The provisions, Mr Khurshid said, are being looked into by the Committee of Secretaries.

"Its gone to the Committee of Secretaries. Once they give it, their comments and recommendations, we will take it up with the Cabinet," he said.

Although the Competition Commission of India became fully functional in May last year, certain sections of the Act still stand to be notified.

The Commission, at present, holds the power to check abuse of dominant position and anti-competitive agreements between companies.

The minister had said earlier that amended Competition Act 2002, along with the provisions, would be placed before the Parliament in the monsoon session, which did not materialise leading to reports that an ordinance could be brought in.

"Let's first see what the issues are. Ordinance becomes necessary when there is an urgency, so we can look at it. We can look at every aspect. But there is no reluctance in the matter of time its only procedural delay," Mr Khurshid said.

In the amended draft, sources said, the ministry has reduced the time for vetting M&A proposals to just 180 days from the 210 days specified earlier.

Also, companies with a turnover of Rs750 crore and above and assets worth more than Rs250 crore would need to come before the CCI.


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