Motherson Sumi Systems- Auditor?

Chairman of Motherson Sumi recently said: “We have done 29 acquisitions till now and not even one has gone bad in any way or so.” Any corporate who has either acquired or has gone through any acquisition already knows the truth!!

This statement puts us at a lot of discomfort, considering that 84% of Motherson Sumi’s consolidated revenue of INR 575,992 mln has NOT been audited by the main auditor who has signed off!!

Let’s find out!!

From Annual Report, 2021

Other Matter

• We did not audit the financial statements and other financial information, in respect of 68 subsidiaries, whose financial statements include total assets of Rs 725,870 million as at March 31, 2021, and total revenues of Rs 485,752 million and net cash inflows of Rs 9,230 million for the year ended on that date. These financial statement and other financial information have been audited by other auditors, which financial statements, other financial information and auditor’s reports have been furnished to us by the management……
• The accompanying consolidated financial statements include unaudited financial statements and other unaudited financial information in respect of 54 subsidiaries, whose financial statements and other financial information reflect total assets of Rs. 20,682 million as at March 31, 2021, and total revenues of Rs 3,445 million and net cash outflows of Rs 77 million for the year ended on that date. These unaudited financial statements and other unaudited financial information have been furnished to us by the management……

• Total Assets: Rs 480,850 mln (Consolidated B/S on March 31, 2021)
• Consolidated Income: Rs Rs 575,992 mln (For the period ended March 31, 2021)

So, 84% of its consolidated revenue has NOT been audited by the main auditor who has signed off!! While the total assets which remain unaudited by the main auditor stands at Rs 725,870 million, this is higher than the audited consolidated assets by 1.5 times!!

Also, note that Rs 20,682 mln of assets & revenue of Rs 3,445 mln has not been audited at all!!

This is not a one-off!! This has been happening since FY2013, wherein the main auditors back then were fine with the numbers which were NOT audited by anyone and gave their sign-offs (obviously with caveats), just based on what management shared with them.

While Revenue for the company has grown at a CAGR of ~34% p.a. since FY2005, thanks to multiple acquisitions, audit fees & other services being received by auditors has also increased at a CAGR of ~30% since then!!

Even with the change of guard wherein new auditors were brought in FY 2017, this practice persists. Reliance on other auditors and unaudited numbers has kept increasing. After all, who wants to slice the golden goose. As long as revenue continues to grow, and the numbers keep showing up – no one’s complaining!! Life is great!!

While the management and the auditors continue live happily ever after, hope no other stakeholder is caught naked when the tide runs out.

Disclaimer: Please note that these are my personal views. While I am NOT a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014, all investors are advised to conduct their own independent research into individual stocks or industries before making any decision. In addition, investors are advised that past stock performance is not indicative of future price action.