Pressure mounts on Jet Airways to clear the air on financials after auditor trouble

Disagreement on reporting of a particular expense or income item with the auditor may have led to the audit committee of Jet Airways not recommending its April-June result to the board.

In a late night announcement on Thursday, the airline said its board hadn’t considered the financial result after the audit committee’s decision. “It may be noted that the Audit Committee did not recommend the said financial results to the Board for its approval, pending closure of certain matters,” it said in a release.

Jet has two auditors: BSR & Co and DTS & Associates. Observers said 'certain matters' would pertain to specific items under expenses or income. “For example capitalisation of interest costs could be an issue. A company’s management may not want to show a loss and the auditor will not agree,” a senior official said.

Jet Airways’ Audit Committee comprises three directors - Srinivasan Vishvanathan (who heads the committee), Vikram Mehta and Harsh Mohan.

While Vishvanathan is a former Managing Director at State Bank of India, Mehta is a retired IAS officer and Mohan is the Chief-Group Support Services Officer for Etihad Aviation Group. In his current role, he is responsible for integrating a range of support functions at Jet Airways. Etihad owns 24 percent stake in Jet.

The bad news

"The  company may not want to communicate bad news, or may want to hide some bad news," says Shriram Subramanian of InGovern Research, a proxy advisory and corporate governance firm.

Jet reported an over Rs 1,000 crore loss in Q4 FY18. It's numbers were expected to be subdued in the first quarter of FY19 too.

Chairman Naresh Goyal on Thursday told shareholders that an increase in 'costs beyond our control' led to the FY18 loss. “Key external factors that slowed down our momentum were: weakening of the dollar-rupee, around 16 percent rise in Brent rates with a consequent rise in fuel costs, industry’s inability to pass on increased costs to the consumer and no corresponding increase in ticket fares,” he said, while addressing the company’s annual general meeting in Mumbai.

The company’s woes would have only increased since then. Late last month it emerged that the management had asked its pilots and engineers to take a pay cut. Reports emerged that the airline had just enough money to last 60 days. The same has been strongly refuted till date.

Pressure on auditors

"The pressure is on auditors after what happened at Fortis and Manpasand," Subramanian of InGovern stated.

Deloitte, which was the external auditor of Fortis, had refused to sign the company's accounts for the September-December quarter of FY18 as it couldn't receive sufficient and appropriate audit evidence over certain inter-corporate loans that saw money being siphoned out of the company.

Fortis disclosed to stock exchanges that its promoters Singh brothers took out around Rs 473 crore through questionable treasury operations. The auditor also delayed signing-off the March quarter result.

It has been a similar case with fruit drink maker, Manpasand Beverages. It has been under the scanner of investors since May after statutory auditor Deloitte Haskins & Sells resigned ahead of a board meeting scheduled for May 30 for consideration of the financial result.

Deloitte Haskins & Sells said Manpasand Beverages failed to provide them with 'significant information' on the FY18 financial result. The earnings announcement was subsequently postponed. The mayhem in May took much of the sheen off the stock, pulling down the stock by 60 percent.

Jet Airways’ stock has been going downhill ever since the problems first surfaced. After dropping to its 52-week low on Thursday, the shares were again down 7 percent on Friday at the time of writing.

Subramanian said that the airline’s management should be forthright with investors. “Investors know the situation in the aviation industry, with the increase in fuel costs.  It should be forthright about it (its financial situation)," he said.

Peer IndiGo reported not too very rosy first quarter result. Profit nosedived 97 percent due to rising fuel costs and forex losses, both of which will also trouble Jet Airways. The Naresh Goyal-company will now announce a fresh date to release its first quarter result.