ISLAMABAD: Pakistan Steels Mills (PSM) — country’s largest industrial unit — is no more a going concern as its current liabilities exceed its assets, independent auditors said in a statement submitted to the government.
The PSM’s external auditors — Crowe Hussain Chaudhry & Co Chartered Accounts — came to this conclusion in their “Qualified Audit Report” based on financial statement for the year ending June 30, 2019 submitted to the government recently. Simply put, the qualified report means the financial statement is either incorrect, has limitations or did not meet accounting standards.
The auditors explained that under the going concern assumption, an entity was viewed as continuing in business for the foreseeable future and the financial statements were prepared on going concern basis unless management was going to liquidate the entity or to cease operation or has no realistic alternative but to do so.
The auditors reviewed the financial results presented to them by the board of directors since 2008-09 showing accumulation of losses almost every year for well over a decade. The financial statements have been audited by the auditors in run up to the proposed privatisation of the mill that ceased its operations on June 10, 2015 when its gas supply was disconnected.
Mills current liabilities exceed its assets
The audit said the management reported the accumulated loss of the PSM at Rs189.729 billion as of June 30, 2019 and the current liabilities on the balance sheet date exceeded its current assets by Rs159.368bn. “These conditions along with other matters indicate the existence of a material uncertainty which may cast significant doubt about the corporations’ ability to continue as a going concern,” the auditor noted.
Interestingly on the other hand, Minister for Industries Hammad Azhar reported to the Senate that PSM loss for the year ending June 30, 2019 stood at Rs16.66bn and accumulated operational losses during the last 10 years amounted to Rs169.5bn.
However, the auditors said the financial statements had been prepared on going concern basis for various reasons and mitigating factors, particularly on the premise that the federal government would come to the corporation’s rescue in case of defaults and that PSM would win its financial dispute with Sui Southern Gas Company Limited (SSGCL).
The audit report explained that the corporation was in dispute with SSGCL with regards to late payment surcharge. The PSM management believed that based on the decisions of the Economic Coordination Committee (ECC) of the Cabinet, the gas company would waive late payment surcharge (LPS). The SSGCL did not accede and stopped gas supply and filed a suit against the corporation for recovery of outstanding gas bills and LPS in Sindh High Court. The PSM filed a counter-suit against SSGCL in the court claiming damages for losses suffered by it owing to discontinuance of gas supply from June 2015.
The management had not recognised any liability in respect of LPS in its financial statements as it expected the decision of ECC to prevail and ultimately LPS would not be payable. “However, in view of suit filed by the SSGCL for LPS claim instead of waiver of the same, we were unable to determine what will be the amount payable by the PSM in respect of LPS”, the auditors said.
The auditors said it performed the audit independently in accordance with international standards, ethics and code of conduct and believed the evidence “obtained is sufficient and appropriate to provide a basis for qualified opinion”.
The management had also disclosed the utilisation of amounts from employees on account of provident fund contribution and provident fund loan. “This is not in line with Section 218 of the Companies Ordinance 2017, which requires the contribution collected from employees and the corporation’s own contribution needs to be deposited within 15 days from the date of collection,” it was noted.
Mr Azhar, in a written statement to the Senate said the government had been making continuous efforts for revival of PSM and making it profitable. He said the company was given financial assistance to enhance capacity but the operations came to a complete halt due to disconnection of gas supply by SSGCL on account of accumulated liabilities.
The minister said the Cabinet had now put the corporation in the privatisation list and ordered appointment of transaction adviser. “Financial adviser has been engaged by privatisation commission who is evaluating the best possible option/mode for the revival of PSM on the basis of various parameters”.
The financial statement of PSM for year 2018-19, however, put the accumulated losses at Rs193bn, total liabilities at Rs228bn and revaluated assets at Rs410bn and net worth at Rs182bn.
Published in Dawn, September 15th, 2020