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AUDITOR'S REPORT

Kingfisher Airlines Ltd.

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Market Cap. (₹) 105.13 Cr. P/BV -0.01 Book Value (₹) -166.59
52 Week High/Low (₹) 0/0 FV/ML 10/1 P/E(X) 0.00
Bookclosure 24/09/2013 EPS (₹) 0.00 Div Yield (%) 0.00
Year End :2013-03 
Report on the Financial Statements:

We have audited the accompanying financial statements of Kingfisher Airlines Limited (formerly known as Deccan Aviation Limited) ("the Company") which comprises of Balance Sheet as at March 31, 2013, the Statement of Profit and Loss and Cash Flow Statement for the year ended on that date and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements:

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 ("the Act"). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility:

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

Basis for Qualified Opinion:

1. Attention is invited to note 48 forming part of the Financial Statements (`Notes') regarding method of accounting of costs incurred on major repairs and maintenance of engines of aircrafts taken on operating lease of Rs. 664.22 lacs (year ended March 31, 2012 Rs. 28,480.24 lacs) (aggregate expenditure up to March 31, 2013 after eliminating expenditure on returned/redelivered assets Rs.25,020.97 lacs), which have been capitalized and amortized over the estimated useful life of the repairs. In our opinion, this treatment is not in accordance with generally accepted accounting standards prevalent in India and ought to have been recognized in the Statement of Profit and Loss as and when incurred.

2. We further report that, except for the effect, if any, of matters stated in paragraphs 3 and 4 below, which are not ascertainable, had the observations made in paragraph 1 above and paragraphs 4 and 10 of our report to the members of the Company on the audit of the financial statements for the year ended March 31, 2012, dated May 30, 2012 (Previous year's Report) been considered,

a. The working results for the year ended March 31, 2013 would have been a loss of Rs. 415,801.51 lacs (year ended March 31, 2012 Rs. 344,402.41 lacs) as against the reported loss of Rs. 430,111.96 lacs (year ended March 31, 2012 Rs. 232,800.75 lacs). This does not take into account the derecognition of deferred tax credit recognized up to March 31, 2012 of Rs. 404,586.77 lacs during the year which should have been done through the Statement of Profit and Loss and not directly in the Surplus account (debit) included under the head `Reserves and Surplus' in the balance sheet

b. The reserves and surplus as at March 31, 2013 would have been debit of Rs. 1,434,042.48 lacs (as at March 31, 2012 debit of Rs. 1,046,090.41 lacs) as against the reported figure of debit of Rs. 1,428,164.15 lacs (as at March 31, 2012 debit of Rs 621,314.83 lacs), other current liabilities as at March 31, 2012 would have been Rs 325,183.68 lacs as against the reported figure of Rs 325,171.29 lacs, fixed assets as at March 31, 2013 would have been Rs. 65,314.71 lacs (as at March 31, 2012 Rs 124,126.34 lacs) as against the reported figure of Rs. 71,193.04 lacs (as at March 31, 2012 Rs 144,302.75 lacs) and deferred tax asset as at March 31, 2012 would have been Rs. Nil as against the reported figure of Rs. 404,586.77 lacs.

c. The earnings (loss) per share for the year ended March 31, 2013 would have been Rs. (54.42) (year ended March 31, 2012 Rs. (68.92) as against the reported earnings (loss) per share of Rs. (56.27) (year ended March 31, 2012- Rs. (46.92)).

3. Attention is invited to paragraph 1 of the annexure to our report (impact of discrepancies, if any pending reconciliation of physical inventory of fixed assets taken during the year 2010-11 with book records), note 34 of the Notes (borrowing costs that may have to be decapitalized consequent to temporary suspension of work of supply of aircrafts in terms of AS 16), note 44 (certain accounts detailed in the said note being under review and reconciliation), note 46 (basis of computation of unearned revenue as at period end/refunds due on account of cancelled tickets/flights. Such estimates of number of unflown tickets and their average value,

based on which management has reportedly estimated the amount of unearned revenue/ refunds due, not being drawn from accounting records, could not be reviewed by us), note 49 (use fees/ hourly and cyclic utilization charges payable by the Company in respect of certain assets taken on operating lease being treated as maintenance reserves, pending formalization of the matter with the relevant lessor), note 52 (write back of withholding tax accrued till March 31, 2011 and non provision for withholding tax thereafter, on amounts paid/ provided as payable to certain non residents/interest thereon, based on professional advice, which are subject to receipt of certain documentation from the relevant payees, the Company complying with the requisite formalities under the relevant tax laws and validation of the position stated in the books of account), note 53 regarding not writing off of unamortized borrowings costs of Rs. 3,021.78 lacs although the consortium banks have recalled their dues, for reasons stated in the note, note 56 regarding compensation and other costs payable by the Company consequent to termination of certain agreements not being determined and accordingly not provided for and foot note to note 17 regarding adhoc provision of Rs. 2,000.00 lacs made during the year (aggregate provision as at March 31, 2013 Rs. 2,634.71 lacs) for unserviceable/damaged engineering and in-flight inventories, pending detailed review and assessment (effect on revenue in all cases is not ascertainable).

4. Management has informed us that the `recoverable amount' of assets within the meaning of accounting standard 28 is more than their carrying value and as such no amount needs to be recognized in the financial statements for impairment loss. We have not been able to validate this assertion in the absence of bids from prospective buyers/valuation report of an independent agency and the uncertainty of resumption of future operations/results of operations thereafter.

Qualified Opinion:

In our opinion and to the best of our knowledge and according to the information and explanations given to us, except for the effects of the matters described in paragraphs 1 to 4 of the Basis for Qualified Opinion paragraph, the said financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India.

i. In the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2013,

ii. In the case of Statement of Profit and Loss, of the loss for the year ended on that date and

iii. In the case of Cash Flow statement, of the cash flows for the year ended on that date.

Emphasis of Matter:

Attention is invited to note 45 to the Notes regarding the financial statements being prepared on a going concern basis, notwithstanding the fact that the Company's net worth is eroded (Net worth as at March 31, 2013 (Rs.1,291,981.85 lacs), the scheduled air operator's permit issued by the Director General of Civil Aviation, Government of India (Permit) has lapsed and the consortium banks have recalled their debts to the Company. These events cast significant doubt on the ability of the Company to continue as a going concern. The appropriateness of the said basis is interalia dependent on the Company's ability to obtain renewal of the Permit, infuse requisite funds for meeting its obligations (including statutory liabilities and those in respect of contracts entered into for purchase of goods and assets), rescheduling of debt/ other liabilities and resuming normal operations. Our opinion is not modified in this respect.

Report on Other Legal and Regulatory Requirements:

1. As required by the Companies (Auditor's Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the annexure a statement on the matters specified in paragraphs 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 our knowledge and belief were necessary for the purpose of our audit.

b. In our opinion, the Company has kept proper books of account as required by law so far as appears from our examination of those books.

c. The Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report are in agreement with the books of account.

d. In our opinion, except for the effects of matters described in paragraph 1 of the Basis for Qualified Opinion paragraph, the Balance Sheet, Statement of Profit & Loss and Cash Flow Statement dealt with by this report, comply in all material respects, with the mandatory Accounting Standards referred to in sub- section (3C) of section 211 of the Act.

e. On the basis of written representations received from Directors as on March 31, 2013 and taken on record by the Board of Directors, we report that none of the Directors of the Company, are disqualified as on that date from being appointed as a director, under clause (g) of sub-section (1) of section 274 of the Act.

f. Since the Central Government has not issued any notification as to the rate at which the cess is to be paid under section 441A of the Act nor has it issued any Rules under the said section, prescribing the manner in which such cess is to be paid, no cess is due and payable by the Company.

(AS REFERRED TO IN PARAGRAPH 1 OF PARA ON REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS OF OUR REPORT OF EVEN DATE TO THE MEMBERS OF KINGFISHER AIRLINES LIMITED)

1. a. The Company has maintained records showing full particulars including quantitative details and situation of fixed assets. However, comprehensive description of assets and current location are to be incorporated in the asset records after completion of reconciliation referred to in paragraph 1(b) below.

b. Fixed assets were physically verified by the management during the year 2010-11. Pending completion of reconciliation which has not been completed, discrepancies, if any, cannot be ascertained (refer note 51 of the Notes). Certain assets of the Company are in the custody of airports to which it has no access (carrying value not ascertained)(refer foot note 4 to note 13 of the Notes)

c. There was no substantial disposal of fixed assets during the year.

2. a. Management has conducted physical verification of inventory at reasonable intervals during the year.

b. The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

c. Pending updating of records and reconciliation, book balances as at March 31, 2013 have been adopted.

3. a. As informed, the Company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Act.

b. As informed, the Company has taken loans from two companies covered in the register maintained under section 301 of the Act. The total loan amount outstanding as at year end was Rs. 49,004.26 lacs and the maximum amount outstanding at any time during the year was the same amount. The rate of interest and terms and conditions on which the said loans are taken is not prima-facie prejudicial to the interests of the Company. No stipulations for repayment have been prescribed and as such no comments regarding regularity of payments are being made.

4. In our opinion and according to the information and explanation given to us, and taking into consideration management's representation that a large number of items purchased are of a special nature for which alternative quotations cannot be obtained, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business for the purchases of inventory. Internal controls in respect of sale of services to be strengthened. Subject to our observations in paragraph 1(b) above and note 46 of the Notes, during the course of our audit, no continuing failure to correct major weakness in internal controls has been noticed.

5. a. According to the information and explanations given to us, we are of the opinion that transactions that need to be entered into the register maintained under section 301 of the Act have been so entered.

b. Further, contracts or arrangements referred to in section 301 of the Act and aggregating to Rs. 5.00 lacs or more per party have been entered into at prices which are reasonable as compared to similar services rendered to / by other parties except in respect of advertisement & sales promotional expenses of Rs. 38.19 lacs, purchases of goods of Rs. 0.10 lacs, and miscellaneous income of Rs. 9.19 lacs where we are unable to make any comments on reasonability of rates since there were no similar transactions with third parties at the relevant time.

6. The Company has not accepted any deposits from the public.

7. The Company has an internal audit system commensurate with its size and nature of its business.

8. To the best of our knowledge and as explained, the Central Government has not prescribed the maintenance of cost records under section 209 (1) (d) of the Act for the products of the Company.

9. a. Undisputed statutory dues in respect of service tax, withholding taxes, fringe benefit tax dues and professional tax have not been regularly deposited with the appropriate authorities. Undisputed statutory dues in respect of provident fund, employees' state insurance, investor education and protection fund, wealth tax, customs, excise duty, cess as applicable, have generally been regularly deposited with the appropriate authorities barring delays in certain months.

b. According to the information and explanations given to us:-

(i) No amounts were outstanding as at year end on account of undisputed amounts payable in respect of employees' provident fund and state insurance, investor education and protection fund, wealth tax, sales tax, customs duty, excise duty and cess for a period of more than six months from the date they became payable.

(ii) Undisputed amounts payable in respect of tax deducted at source of Rs.62,035.34 lacs, service tax of Rs. 7,303.77 lacs, professional tax of Rs. 44.04 lacs (In all cases relating to the years 2007-08 to 2012-13), fringe benefit tax of Rs. 55.87 Lacs (balance of tax for the financial year 2008-09) and gratuity to resigned employees of Rs. 410.10 Lacs (relating to the year 2011-2012 and 2012-13) were outstanding for a period of more than six months from the date they became payable (excluding applicable interest in all cases) (to the extent identified pending review and reconciliation of the relevant accounts). The due dates for these amounts are as per respective statutes. The tax deducted at source liability indicated in this paragraph is without considering tax on certain payments to non-residents (liability withdrawn/ not provided for based on professional advice) as referred to in note 52 of the Notes.

c. According to the information and explanations given to us, the following dues have not been deposited with the concerned authorities on account of dispute

                          Estimated 
Year                      amount       Pending before
                         (Rs. in Lacs) 
Tax deducted at source Liability arising out of 12,028.73 Supreme Court of rejection of approvals India under section 10(15A) of the Income Tax Act, 1961,

2004 - 09                    144.74     Commissioner of 
                                        Income tax (Appeals)

2007 - 08                    272.94     Commissioner of 
                                        Income tax (Appeals)

2008 - 09                  1,194.32     Commissioner of
                                        Income tax (Appeals)
                                        Service Tax 

2004-05 to 2007-08           464.94     Customs, Excise and
                                        Service Tax Appellate
                                        Tribunal 

January 2005 to           19,067.67     Customs, Excise and
September 2007                          Service Tax Appellate
                                        Tribunal. 

June - October 2006          553.80     Customs, Excise and
                                        Service Tax Appellate
                                        Tribunal. 

June 2008 to April           722.20     Customs, Excise and 2010
                                        Service Tax Appellate
                                        Tribunal. 

2005 - 06 to 2009 - 10       168.38     Customs, Excise and
                                        Service Tax Appellate
                                        Tribunal.

2010 - 11                    429.14     Customs, Excise and
                                        Service Tax Appellate 
                                        Tribunal.
10. The Company's accumulated losses at the end of the financial year were more than fifty percent of its net worth. The Company has incurred cash losses during the financial year and in the immediately preceding financial year.

11. Based on our audit procedures and as per the information and explanations given by the management, the Company has defaulted in repayment of loans and interest to banks and financial institutions. Estimated unpaid overdue interest and installments to banks and institutions as at March 31, 2013 aggregated to Rs. 284,538.21 lacs including devolved guarantees/ letters of credit unfunded as at that date. The over dues relate to the financial years 2011- 2012 and 2012-13.

12. According to the information and explanations given to us and based on the documents and records

produced to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly, the provisions of the clause 4(xii) of the Order are not applicable to the Company.

13. In our opinion, the Company is not a chit fund or a nidhi, mutual benefit fund / society. Accordingly, the provisions of the clause 4(xiii) of the Order are not applicable to the Company.

14. In our opinion the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Order are not applicable to the Company.

15. According to the information and explanations given to us, the Company has not given guarantees during the year for loans taken by others from banks or financial institutions. Accordingly, the provisions of clause 4(xv) of the Order are not applicable to the Company.

16. Based on information and explanations given to us by the management, term loans taken during the year have been applied for the purpose for which they were obtained, wherever specified by the bank in the relevant sanction letters.

17. According to the information and explanations given to us and on an overall examination of the balance sheet of the company, we report that funds raised on short- term basis to an aggregate extent of Rs. 745,468.39 lacs have been used for long term investment as at March 31, 2013.

18. Based on information and explanations given to us by the management, the Company has made not any preferential allotment of shares to parties or companies covered in the register maintained under section 301 of the Act. Accordingly, the provisions of clause 4(xviii) of the Order are not applicable to the Company.

19. No debentures were outstanding as at March 31, 2013. Accordingly, the provisions of clause 4(xix) of the Order are not applicable to the Company.

20. The Company has not raised any money by public issue during the year. Accordingly, the provisions of clause 4(xx) of the Order are not applicable to the Company.

21. As per the information and explanations furnished to us by the management, no material frauds on or by the Company and causing material misstatements to financial statements have been noticed or reported during the course of our audit, except for charge backs received by the Company from credit card service providers due to misutilisation of credit cards by third parties of Rs. 34.02 lacs.

                                 For B. K. RAMADHYANI & CO.

                                 Chartered Accountants 

                                 Firm registration number: 002878S

Place : Mumbai                  (Shyam Ramadhyani)

Date : May 30, 2013              Partner

                                 Membership No. 019522
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