Refer to the extracts from the annual report 2001–2002 of Hindustan Motors Limited regarding qualifications in its auditors’ report, management’s viewpoint and directors’ explanations on these qualifications in the board’s report as illustrated in this chapter. Analyse the case and attempt the following requirements:
1. Don’t you think that reasonable estimates of the extent to which doubtful/disputed debts could become bad and of the liability towards additional salary and wages can be made so that they could be recognized in the financial statements? What could be the motives of the company in not doing so?
2. Are the explanations offered by the management, and accepted by the auditors, regarding the non-ascertainability of the likely impact of these outstandings on the operational results of the company justified?
3. It has been reported that due to various non-provisionings, loss for the year would have been ₹9,281.54 lakh (including ₹3,247.60 lakh for earlier years) as against the reported loss of ₹3,385.31 lakh. The difference amounts to a whopping ₹5,896.23 lakh. Is it still a true and fair view as expressed by the auditors? Is it justified?
4. In your view, is the disclosure of directors’ explanation in the board report adequate?