Infibeam Auditors Raise Questions On Advances To Vendors

Auditors to Infibeam Avenues Ltd. raised questions about advances to vendors and how it recognises revenue in a fresh concern for the online retailer.

SRBC & Co. LLP, the audit arm of EY, and Shah & Taparia sought more information to justify the rationale and appropriateness of the advances, according to the auditors’ report to the third-quarter earnings. The advances were routed through subsidiaries.

The questions from the auditors come about four months after the company’s shares tumbled 71 percent in a single day. That stemmed from a WhatsApp message circulating among traders alleging that it had given unsecured, interest-free loans to its units. At the time, Infibeam denied the allegation. But the stock hasn't recovered and is still trading 83 percent below its peak.

Infibeam is yet to respond to BloombergQuint’s emailed queries seeking clarification on, among other things, that if any of the vendors is a related party. The company in its financial statement, however, said it has provided documentation and will make additional information available to satisfy the auditors.

Advances

According to the auditor’s third-quarter report, Infibeam advanced Rs 122.31 crore to its subsidiaries, which on-lent the amount to project vendors.

The management failed to clarify and provide adequate information about the rationale behind the transaction, terms and conditions and how it selected the vendors, according to the auditors.

The audit firms, in the note to exchange filings, said they couldn’t comment if the advances can be recovered till they get the required information. BloombergQuint’s emailed queries to the firms remained unanswered.

Infibeam, in a statement to exchanges on Feb. 16 after the BloombergQuint’s report was published, said the conclusion by auditors will depend on the additional documents to be provided by the management in due course. Till then, it said, no person including the media should make any assessment or conclusion on the points highlighted in the auditors’ note.

Revenue

In a separate note, they raised concerns about lack of “robust documentation” for Rs 32.01 crore revenue recognised during the quarter. Nearly Rs 24 crore of it pertained to the first and second quarters.

While the auditors cited management’s explanation that web development and maintenance services are customised and specialised, they said the “comparable market price and robust documentation for arriving at the basis of the price charged to the customer is not available”.

They cited inability to comment on the impact of loans and recognised revenue on the third-quarter financials till they get the “requisite evidence”.

(Updates an earlier version to add Infibeam’s statement to exchanges in the eighth paragraph)