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KE says will take ‘appropriate legal action’ on ex-board member’s letter

  • Asad Ali Shah, in letter to PSX CEO, says KE's financial statements carried 'material misstatements' that made them 'misleading'
Published January 13, 2023

K Electric (KE) has said that it is developing a detailed response to the allegedly circulated letter with the subject ‘Material misstatement in K-Electric’s (KE) financial statements due to which published financial statements are rendered misleading’, saying that the company will also be taking appropriate legal action in response to the claims.

“Our accounts are fully compliant with all the relevant rules and regulations including the International Financial Reporting and Accounting Standards,” said Chief Marketing and Communications Officer K-Electric, Sadia Dada, in a response to Business Recorder on Friday. “We disagree with the author’s claim of them not being compliant. In fact, the author himself mentions many times that these are his ‘own’ views while continuing to make far-fetched and ill connected arguments.”

Dada said that the company became aware of the letter through market sources and has voluntarily informed the Pakistan Stock Exchange (PSX) that the contents of the letter circulating in the public domain “are a misrepresentation of facts and misunderstanding of accounting principles by the author”.

“(The letter) is clearly defamatory in nature and has mala fide intent,” said Dada, adding that a detailed response is being developed and the company will also be taking appropriate legal action.

KE’s letter to PSX and Shabbar Zaidi’s take on the issue

Dada’s statement comes after KE had said it will respond to the letter in detail, which will clarify its position and enable the PSX to take an informed view.

In its correspondence dated January 11 and addressed to Farrukh H Khan, the PSX CEO, KE said that at the outset “we find its contents a misrepresentation of facts as well as a misunderstanding of accounting principles”.

The KE correspondence, a copy of which is available with Business Recorder, also stated the company was made aware of the attempt by “a former board member to malign the company”.

“According to market sources, Mr. Asad Ali Shah, who is one of the former members of KE’s Board of Directors, has allegedly circulated a letter.

“We submit that KE is and has always been fully compliant with all the relevant rules and regulations including financial reporting and accounting standards. Having said that, we learnt of a copy of the said letter in the late hours yesterday to which KE will be responding to in detail, clarifying its position and enabling the Stock Exchange to take an informed view.

“We believe that the foregoing approach would be in the best interest of our shareholders.”

Shabbar Zaidi, former partner at A. F. Ferguson & Co., called Asad Ali Shah’s letter “out of place and untimely”.

“I had been the senior partner at the largest and oldest accounting firm for six years and also the president of Institute of Chartered Accountants of Pakistan (ICAP),” Zaidi said in a statement to Business Recorder. “Other than tax, I was leading the special advisory segment of the firm and led the team with two of my partners along with the support of our member firm PricewaterhouseCoopers for MYT with NEPRA.

“There can always be disagreement on views, however, it is totally uncalled for to make this kind of public statement without taking the management into confidence.

“I can say very comfortably that the claim made by KE is totally justified and instead of helping the company in recovering a sum due to KE, a friend in the accounting community is entering a technical debate which we can answer in hundreds of pages.

“I will advise KE to engage with my friend and refrain from taking legal action as it can be thought of one person not supported by proper understanding of the matter, background, accounting standards etc.”

Asad Ali Shah’s letter

Asad Ali Shah’s letter, dated January 10 and also addressed to the PSX CEO, alleged that KE’s financial statements carried “material misstatements due to which the published financial statements are rendered misleading”.

“I am writing to report major financial reporting irregularities by KE in the published financial statements,” stated Shah’s letter, a copy of which is also available with Business Recorder.

“These irregularities are in violation of relevant legal framework and detrimental to the interests of its members and stakeholders. I may mention here that as a member of the Board of Directors (the “Board”) and the Board’s Audit Committee (“BAC”), I have been highlighting my views as to why KE’s claims for write offs from Government of Pakistan (“GoP”) as tariff differential claims have been incorrectly recorded and had dissented when the financial statements for the period ended September 30, 2021 and subsequent periods were endorsed by BAC and approved by the Board.”

The letter alleged that KE has indulged in incorrect recognition of revenue and receivables from the government of Pakistan for last several years in respect of its write offs of trade receivables (which KE management asserts are recoverable as tariff differential, as explained in ensuing paragraphs) without specific approval from National Power Regulatory Authority (NEPRA or the Authority) or any acknowledgement from the government of Pakistan.

“The recognition of such revenue is clearly in violation of IFRS-15 (which is essential part of legally applicable accounting framework) resulting in major overstatement of revenues, receivables and profits, and accordingly its financial statements for the quarter ended September 30, 2022, for the year ended June 30, 2022 and earlier periods (annual & quarterly) during the past few years of current Multi Year Tariff (MYT) from July 2016 to date have contained material misstatements,” it added.

The letter said that as per the latest quarterly financial statements issued by KE for the period ended September 30, 2022, aggregate amount of revenue and receivables recognized in respect of write-offs (tariff differential claim receivable from GoP) amounted to Rs53.5 billion.

“A prudent approach in accordance with applicable accounting standards should have been not to recognize such claims, unless and until NEPRA had specifically approved such amounts after due process. Further, out of this claim, substantial portion of receivables are not valid claims and do not meet the legal requirements (NEPRA consumer service manual) and the recognition criteria under International Financial Reporting Standard (IFRS) 15. Consequently, KE’s receivables and cumulative profits are overstated by a huge amount of Rs53.5 billion, and there is insufficient disclosure to highlight material uncertainties with respect to recovery of such amounts in the financial statements.”


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