TCP receivables rose to Rs 2.91 billion in fiscal year 2010: Audit Report 2010-11

Prepayments and other receivables of the Trading Corporation of Pakistan rose from Rs 210.992 million in 2008-09 to Rs 2.910 billion during 2009-10. The trade debtors of TCP rose from Rs 16.204 billion in 2008-09 to Rs 31.295 billion in 2009-10 registering an increase of 93.13 percent.
According to Audit Report 2010-11 exclusively available with Business Recorder, sales of TCP decreased from Rs 64.161 billion in 2008-09 to Rs 45.161 billion in 2009-10. The report says that cost of sales also decreased from Rs 61.905 billion to Rs 43.870 billion in 2009-10.
Resultantly, the gross profit also decreased from Rs 2.256 billion to Rs 1.291 billion in 2009-10. The Auditor General of Pakistan (AGP) recommended efforts to increase sales in future and for early recovery of the corporation's dues in order to avoid the possibility of their conversion into bad debts. The audit stated that the abnormal increase needs justification. The external auditors expressed six qualification remarks on the accounts for the year 2009-10, which are as follows:
a) An amount of Rs 3.638 billion has been included in inventory, which represents financial charges on overdraft facilities and income tax on turnover and purchases. The amount should be included in dues from the government. There will be no effect on total assets of the company if the said adjustments are recorded.
b) The mark-up on overdraft amounting to Rs 10.719 billion has been included in the cost of sales instead of financial cost and the gross profit has been reduced by Rs 10.719 billion. However the net profit before tax remains the same if the said provision is recorded.
c) Income tax expenses amounting to Rs 1.038 billion have been included in the cost of sales instead of income tax expense. This results in decrease in gross profit by Rs 1.038 billion and decrease in income tax expense of Rs 1.038 billion. However the net profit after tax will remain the same. d) Provision for gratuity is not based on actuarial valuation as required by International Financial Reporting Standards.
e) The RECP (defunct) provided a bank guarantee amounting to Rs 25 million in favour of Government of Pakistan on account of import fee and sales tax and kept margin against these guarantees with NBP. The guarantees have since expired but the margin has not been reversed.
f) A sum of Rs 541.284 billion (2009: Rs 523.386 billion) has been shown as contingent liability which is a specific liability and should have been provided in the books of account as Liverpool Cotton Association (LCA) has been given foreign award against CEC (Defunct) merged in TCP. TCP has filed appeal against the decision of Liverpool Cotton Association in the High Court of Sindh.
The report says that the qualifications expressed by external auditors made the reasonableness of the accounts doubtful in the above-listed areas. Corrective measures for removal of the qualifications were not taken by the management till finalisation of the audit report. Improvement in this regard needs to be expedited.