Lahore October 11 2021: In Auditor’s opinion and according to the explanations given to them by Dost Steel Limited, because of the significance of the matters as discussed in the Basis for Adverse Opinion section of Auditor report, the statement of financial position, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows together with the notes forming part thereof do not conform with the accounting and reporting standards as applicable in Pakistan and do not give the information required by the Companies Act, 2017 (XIX of 2017), in the manner so required and respectively do not give a true and fair view of the state of the Company's affairs as at June 30 2021 and of the loss and other comprehensive loss, the changes in equity and its cash flows for the year then ended.
A L S O || R E A D
Basis for Adverse Opinion
Dost Steel has incurred a net loss Rs. 175.002 m and its accumulated losses are Rs. 1,415.438 m. The current liabilities of the company exceed its current assets by Rs. 651.205 m and liquid assets by Rs. 682.832 m. The company has also been facing long overdue receivables, unfavorable key financial ratios, difficulty in complying with the terms of loan agreement with banks and to pay creditors on due date. The company is in default under its syndicated contractual obligation with bankers as it could not pay any of the 4 installments totaling to Rs. 69.863 m during the year and was unable to obtain additional finance. It has stopped its commercial production since 2019 and lost its key management staff without replacement due to working capital deficiency. There are also banking litigations against the company. Management of the company has also not shared any future plans to revive its business. The covenants of long term loans have been breached at the reporting date. These conditions indicate the existence of significant material uncertainties which may cast significant doubt on ability of the company to continue as going concern, to realize its assets and to discharge its liabilities in normal course of business. However, these financial statements do not include any adjustment relating to the recoverability and classification of recorded assets and classifications of liabilities that might be necessary should the company be unable to continue as going concern. Under the circumstances use of going concern assumption is not appropriate;
Advance for issuance of shares — unsecured from Crescent Star Insurance Limited (CSIL) and its assignees amounting to Rs. 354.279 m as disclosed in note 17, out of it M/s Dynasty Trading (Private) Limited (DTPL) confirmed amount due to it of Rs. 247.995 m and balance amount remained unconfirmed. The amount of Rs. 354.279 m is due to CSIL and it assignees, however CSIL is now disputing assignment to Dynasty Trading (Private) Limited (DTPL) (Refer 17 and 24). Further we were also unable to confirm these balances by alternative means;
We did not receive responses to our letters requesting for confirmations from banks amounting to Rs, 0.061 in/-. Further bank statements of 15 out of 17 banks were also not provided by the management. Therefore, due to lack of sufficient appropriate evidence we were unable to determine whether any adjustment might have been necessary;
The syndicate long term finance (LTF) of Rs. 793.815 m, mark up accrued (freezed) thereon of Rs. 614.940 m, accrued mark up on overdue portion of LTF of Rs. 169.695 m and mark up charged during the year of Rs. 59.854 m as disclosed in note 18, 19, 22 and 28 respectively, remained unconfirmed. Further the company has breached the covenants of the long term financing and as per the requirement of the IAS I (Presentation of Financial Statements), has not classified its long term financing into current liabilities, which constitute the departure from International Financial Reporting Standard. Moreover, the company have discontinued payments of installments however no information regarding consequent default penalty or additional mark up not incorporated in the financial statements, is available. Therefore, accuracy of the figures could not be ascertained;
Balance confirmation requests remained un-responded in respect of 'trade creditors', 'contract liabilities', 'long term security deposits', 'trade debtors' and 'advances for supplies/services' amounting to Rs. 35.562 m, Rs. 0.431 in, Rs. 40.490 m, Rs. 42.482 m and Rs. 1.026 m respectively. We were unable to satisfy ourselves by alternative means;
The Company has not conducted impairment testing of its property, plant and equipment as on 30 June 2021 under the IAS 36, Impairment of Assets which constitute departure from International Financial Reporting Standards. We consider it is necessary at the year end as the production of the company has been stopped since 2019. Any impact of the same on assets and statement of profit or loss of the Company is not determined
Confirmation from 6 Legal Advisors and consultants, of the company regarding pending
litigations and contingencies as on 30 June 2021 were not received therefore completeness of contingencies as disclosed in note 24 cannot be commented upon;
The company had not appropriately complied with requirements regarding deduction and deposit of withholding taxes, amounts due to Punjab Employees' Social Security Institution and Employees' Old Age Benefit Institution. Neither consequent impact of default penalty/surcharge due to non-compliance of related provisions of the relevant laws has been quantified nor it has been disclosed in these financial statements. These dues have not been separately disclosed in the financial statements as per the requirement of IAS-1 "Presentation of Financial Statements";
The Company has not followed the IAS-19 "Employee Benefits" for determining gratuity
payable under Industrial and Commercial Employment (Standing Orders) Ordinance, 1968, as explained in note 4.17 and 20 to the financial statements and the impact of the noncompliance of LAS 19 on fmancial statements has not been quantified;
Auditor conducted their audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our adverse opinion.