SCRUTINY

Nakumatt's directors lied about the firms financial position - Audit

Auditor said management could not provide costing schedules to ascertain inventory values.

In Summary

• The firm's creditors will be meeting the administrator next Tuesday at Oshwal Centre to decide the retailers fate

• The company also made an unexplained adjustment to the opening retained earnings of Sh9 million (2017 Sh4.3 billion)

Nakumatt Highridge branch. Photo/Monicah Mwangi
Nakumatt Highridge branch. Photo/Monicah Mwangi

An audit report has cast doubt on the true nature of Nakumatt Holdings Limited, even as creditors of the embattled retailer prepare for the second meeting Tuesday next week.

In a letter seen by the Star, the firm’s administrator Peter Kahi has invited creditors to chat the way forward for the retailer, which was put under administration in January 2018 over Sh30 billion debt.

The independent audit of the annual and financial statements for the retailer, currently under administration as of February 2018 complied by Parker Randall has unearthed multiple inconsistencies, despite the director giving those statements a clean bill of health.

 
 

For instance, despite the firm’s making incurring a net loss of Sh6.5 billion during the period and its current liabilities exceeding current assets by Sh17.9 on top of a shareholders’ deficit of Sh27 billion, the firm’s director Atul Shah indicated that the company was in a sound financial position. 

‘’Having made an assessment of the Company’s ability to continue as a going concern, the directors are not aware of any material uncertainties related to events or conditions that may cast doubt upon the Company’s ability to continue as a going concern,’’ Shah opined in the director’s statement.

Even so, the auditor said the accompanying financial statements had been prepared to assume that the Company will continue as a going concern yet it had suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern.

The auditor issued a disclaimer of opinion on the financial statements for the year ended February 28, 2017, saying he did not get sufficient evidence on opening balances.

The auditor further said the management was also unable to provide proper costing schedules to enable the audit to ascertain inventory values contained in the financial statements.

"We were unable to satisfy ourselves by alternative means concerning the inventory quantities held on February 28, 2017, and 2018 which are stated in the statement of financial position at Sh5 billion and Sh1 billion, respectively," the audit says. 

The company also made an unexplained adjustment to the opening retained earnings of Sh9 million (2017 Sh4.3 billion).

 
 

According to management, this related to the correction of errors occurring in periods proceeding the year then ended.

The management did not collect sufficient data to enable it to determine the effect of correction of the error and it was impractical to reconstruct such data.

There were unexplained variances of Sh9.7 million between the general ledger and supplier statements or reconciliations did not support detailed aging analysis of trade payables, and the balances on the detailed analysis.

This variance was written back as a prior period adjustment.

The Company fully owns the subsidiaries in Kenya, Uganda, Tanzania and Rwanda but did not prepare consolidated financial statements as required by IFRS 10 which requires a parent entity which is an entity that controls one or more other entities to present consolidated financial statements.

Early last month, Nakumatt shut down its Prestige mall outlet with rival Naivas taking over.