As a veteran reader of annual reports would know, accounts (even audited ones) are subject to several adjustments/interpretations. This is because on the same facts, different people can take the same view. Auditors merely ensure that the management interpretation does not cross canons of incorrectness.
Facts in brief
Adani and Tata had bidded for coal based power plants respectively with capacities
tied up under power purchase agreements (“PPAs”) for twenty five years with substantially fixed tariffs. The PPAs
for these plants were made based on the commitments / understanding that domestic coal linkages would be
available to meet the fuel requirements. However, adequate coal linkages were not made available due to various
reasons not attributable to the respective subsidiary companies. In response to pleas for compensating the losses
due to above, the respective state electricity regulators had granted part relief in form of interim compensatory
tariffs, however this matter was litigated and has not reached finality as of now.
Stance taken by Adani Power-Recognize revenue
As per the assessment by the Management, it would not be unreasonable to expect ultimate collection of an
equivalent amount as the CT towards relief due to impact of Force Majeure events which is predicated on
the legal advice that the CERC may be guided by the principles of restitution / mitigation of the impact of the
promulgation of the Indonesian Regulations and non-availability of short supply in determining the extent
of impact of Force Majeure events. In view of the aforesaid, the Company has continued to recognise total
revenue of H3,374.66 Crores on account of the CT upto 31st March, 2016 (including H674.19 Crores for the year
ended 31st March, 2016 and H857.35 Crores for the year ended 31st March, 2015) based on the formula and
methodology prescribed by CERC vide its order dated 21st February, 2014 considering the same as the most
appropriate basis for measuring impact of the Force Majeure
Stance Taken by Tata Power-No revenue recognition-Director's report for FY 2015
CGPL has been legally advised that it has a good arguable case. However, in view of the pending appeal as mentioned above
and considering that the amounts associated are significant, CGPL has not recognised revenue amounting to ` 757.89 crore for
the year ended 31st March, 2015 and ` 1,019.06 crore for the period from 1st April, 2012 to 31st March, 2014.
Above stance not expected to change as the company has not recorded this income in the audited accounts for the year ended 31 Mar 2016.
Both the below companies are audited by the same Big 4 auditor Deloitte. Yet on very similar facts and the identical rulings, the companies took a very different view to revenue recognition, and the . Tata Power conservatively chose not to record revenue considering the high stakes involved, while Adani Power decided to record it basis management assessment. Accounting risk is therefore higher in the latter, from an investor perspective. While the statutory auditor has qualified the audit report in Adani possibly for this reason citing it as an internal control weakness, this is more a process rebuke than calling it wrong accounting
According to the information and explanations given to
us and based on our audit, a material weakness has been
identified as at 31st March, 2016 in the Company relating
to inadequate internal financial controls over financial
reporting in respect of revenue recognition on account
of additional tariff claims pending determination by
regulator, and final outcome of the litigations.