The Securities and Exchange Commission of Pakistan (SECP) has directed the directors of listed companies to maintain proper books of accounts/financial statements in conformity with the requirements of the Companies Act and financial reporting standards.
In this connection, the SECP has issued a directive to Dadabhoy Sack Limited (DSL).
According to the SECP’s directive, the listed companies are required to prepare their financial statements and maintain its books of accounts to give a true and fair view of the state of affairs of the company.
It is the responsibility of the directors of the company to keep proper books of accounts in conformity with the requirements of the Companies Act and complied with the financial reporting standards notified by the Commission. The company has committed a default by not complying with the requirements of section 225 read with section 220 of the Act with regard to the preparation of its accounts for the year ended June 30, 2021.
The order shall dispose of the proceedings initiated against the said company and Board of Directors of the company (respondents) through the notice issued under the provisions of Section 474 of the Companies Act, 2017.
The company’s auditor report disclosed during the current year that the operations of the company are closed since financial year 2008 due to which the company is facing financial and operational difficulties and is unable to discharge its liabilities in due course of business. The company is reporting ‘nil’ sales since then and is totally dependent on the financial support of its Directors and Sponsors to fulfill its operational and financial obligations.
These factors indicate the existence of material uncertainty that may cast doubts regarding the company’s ability to continue as a going concern and accordingly, the company may not be able to realize its assets and settle its liabilities at stated amounts in the normal course of business. The financial statements do not disclose this fact. Further, mitigating factors disclosed by the management in the note of the financial statements reflect only tentative steps planned by the management for restarting the operational activities of the company which have not been materialized till the issuance of these financial statements.
The company has not carried out a revaluation of items of property, plant and equipment the same is required to be carried out every three to five years in accordance with the requirements of IAS 16. The last revaluation was carried out for the year ended June 30, 2016. We could not determine the amount of adjustment that may have arisen had the revaluation being carried out.
Moreover, adverse opinion was also given on the basis of qualification by the statutory auditor in their report to the members on the annual audited accounts for the year ended June 30, 2020. Furthermore, the statutory auditor of the company has been giving an adverse opinion on the annual audited accounts of the company since June 30, 2016.
The statutory financial statements of companies are required to be prepared in accordance with the approved accounting standards comprising IFRS/IAS, as applicable in Pakistan, in addition to the requirements of the Act and should reflect the true state of affairs of the company.
However, the company in its financial statements for the year ended June 30, 2021, has, prima fade: a) failed to maintain its books of accounts to give true and fair view of the state of affairs of the company as required by Section 220(1) of the Act; and b) failed to prepare and present its financial statements to give a true and fair view of the state of affairs of the company as required by Section 225(1) of the Act
The SECP has carefully considered the circumstances of the case, available records and applicable legal provisions.
The compliance certificate was required under section 474 of the Act to review whether the company has rectified the default within thirty days of the notice as is required under section 474(1) of the Act. It is pertinent to mention that the financial statements of a company shall present a true and fair view of the affairs of the company irrespective of the operational status of the company. There is no relaxation or exemption from the requirements of section 225 of the Act vis-a-vis the true and fair view of the affairs of the company as presented in the financial statements.
The SECP has also considered that the Respondents were allowed more than ample time to attend a hearing, however, they did not avail the opportunities. The basis for the notice was the adverse opinion issued by the auditor on the annual audited accounts for the year ended June 30, 2021 and the respondents were required to rectify the same.
Therefore, in the exercise of the powers conferred by section 474 of the Act, the SECP hereby directs the respondents to rectify the defaults affecting true and fair view to the satisfaction of the company’s auditor in the financial statements for the period ending December 31, 2022.
It is emphasized that in case of non-compliance with the direction given through this order, the directors and the chief executive of the company shall be liable for action under section 499 of the Act, SECP added.