Auditor has identified exaggerated figures of sales, assets, and inventories in the FY23 financial statements of Khan Brothers PP Woven Bag Industries.
In a qualified opinion published on the Dhaka Stock Exchange's (DSE) website, the auditor said there were discrepancies found in a physical examination of raw materials and finished goods
Khan Brothers showed materials and finished goods worth Tk 597.46 million in its financial report for FY23, but the auditor found items worth only Tk 407 million.
The missing stock of items was not in the company's bonded warehouse.
"We were not provided with any copy of the annual audit report submitted by the office of the bond commissioner, despite our repeated request though those were bonded stock."
A recovery from finished goods and raw materials, as shown in the financial statements, looked very remote and insignificant, added the auditor.
The net loss of the company as well as inventory, net assets, and retained earnings has also been overstated by an equivalent amount.
"To the best of our understanding the company is running through subcontract works on cancellation of export orders."
Khan Brothers' financial statement showed revenue of Tk 100.94 million for FY23, earned by subcontracting works, and that it realised Tk 74.35 million in the year, but the auditor was unable to trace the money since it had been received in cash, not through bank transactions.
Khan Brothers also showed export bills receivable of Tk 62.21 million, which have been carried forward for the last two years. It did not keep any provision against the debts that are at high risk.
"The management was unable to provide any communication documents within a couple of years relating to follow up and progress for realisation of the amount," said the auditor.
It also found non-compliance with the value-added tax (VAT) rules and that the company has not yet introduced employee provident fund.
The company also failed to confirm its possession of a piece of land worth Tk 140.88 million.
The inspectors, who visited the company, said they had not been provided with any original copy of the land ownership documents, charge document, and khazna receipts.
Moreover, the company's fixed deposits of Tk 30 million are with scam-hit People's Leasing And Financial Services Limited, but no provision has been kept against the money too.
Khan Brothers has been suffering from a severe working capital shortage that forced the company to subcontract works. Losses piled up to Tk 48 million in the four years to FY23.
"All those have ultimately created going concern threats to the company," said the auditor.
Stock Performance
Loss-making Khan Brothers is among 14 companies that the Dhaka Stock Exchange has sorted out for factory inspections, aiming to expose real scenarios to investors.
Despite the grim performance, the stock of Khan Brothers has continued to soar on the bourse and rose 3.78 per cent further on Tuesday to Tk 79.60 per shares.
It jumped an astounding 243 per cent in just three months.
The unusual price movement prompted the prime bourse to serve show-cause notices to the company. Company secretary Tapan Kumar Sarker said they had no undisclosed price sensitive information which might influence the stock price.
He said the business had been seriously affected by the pandemic for a lack of orders from foreign buyers. The management has been trying to continue operations partially to supply local businesses.
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