Election Books, Bullion And Gold – Why Vakrangee’s Auditor Quit

Price Waterhouse & Co did not complete even a year of auditing Vakrangee Ltd. before it resigned. Appointed at the annual shareholder meeting in September last year, PW did a standard limited review of the second and third quarters. Typically, the fourth quarter is when auditors start working on the full-year accounts, especially for mid- and small-sized companies. And that's when PW ran into a problem.

The absence of “adequate and relevant information and explanations” regarding the company's “Election Books, bullion and jewellery businesses”. This is stated in its resignation letter on April 27, a copy of which has been viewed by BloombergQuint.

The letter claims that after repeated attempts in March and April to seek further information from Vakrangee's audit committee and management, PW did receive some explanations but they were “inadequate or contradicting earlier explanations” and thus did not provide “appropriate audit evidence”.

“In the absence of adequate and relevant information and explanations, the fundamental objective of an audit which is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on the financial statements, in our assessment, cannot be achieved.” - PW Resignation Letter

The PW letter documents requests for information made on March 12, 22, 30 and April 5 to the company's audit committee and management.

It also states that the auditors met with Vakrangee's Dinesh Nandwana and Avinash Vyas on April 18 and and spoke with BL Meena that day too. And yet its assessment did not change.

Vyas and Meena are independent directors on Vakrangee's board and members of the audit committee along with Ramesh Joshi - also an independent director. Nandwana is the company's promoter, managing director and chief executive officer.

In its response to PW's resignation, Vakrangee claimed it had provided all business and company information to the auditor and audit committee. A company statement filed with the stock exchanges did not make any mention of the specific queries raised by the audit firm stating instead that Vakrangee is fully compliant with Ind-AS accounting standards and that its audit committee is “fully satisfied with all the information and explanations provided by the company”.

But the Vakrangee statement leaves several questions unanswered:

• How and why did election books, bullion and gold, three of 26 services offered by the company, become material to an audit?
• What information did PW seek that Vakrangee was unable to provide?
• Why did Vakrangee provide information that was “inadequate or contradicting earlier explanations” as described by PW.
• Why has it not explained this in more detail in the statement to stock exchanges?

The same questions emailed to the company have yet received no response.

Prior to the appointment of PW, SK Patodia & Associates has been the company's auditor for at least 10 years.

Stock Down 80%

This development is significant for at least three reasons. First, auditor resignations are not a common feature, definitely not in India. Second, if the financial issues were not material they would not have prompted a resignation; and third, because neither election books, nor gold, nor bullion are core businesses of the company.

Vakrangee describes itself as a “technology driven company” with a network of 44,000 retail outlets, Vakrangee Kendras, that offer services ranging from banking to payment of utility bills, enrollment in government schemes and e-commerce.

To be sure, the 26 different services listed in its 2017 annual report do mention election card and electoral rolls under e-governance services and an alliance with Augmont for sale of gold products as one of its e-commerce offerings.

The only other disclosed business connection to gold lies in a surprise revelation in January this year that Vakrangee had purchased 20 lakh shares of PC Jeweller as part of its treasury operations. Vakrangee also claimed that PC Jeweller was a business associate and that it intended to sell its products via Vakrangee Kendras. Curiously, PC Jeweller denied any association with Vakrangee.

In the year to date period, Vakrangee's share price is down 80 percent. A big turn in fortune for a company that just months ago saw its promoter make it to the Forbes billionaire list.