Auditor alarms concerns over advance payments to vendors and revenue filed by Infibeam in Q3

All isn’t well at India’s first public e-commerce firm Infibeam Avenues Ltd. While the company had announced its December quarter financial with 2X revenue jump along with 14 fold leap in profit, company’s auditor has raised alarm over advance payment made to vendors and how it recognises revenue.

SRBC & Co. LLP, the audit arm of EY, and Shah & Taparia had asked for more information to justify the logic and appropriateness of the advance payments that were executed through subsidiaries. Infibeam had paid Rs 122.31 crore to multiple subsidiaries.

Auditor had outlined that the management had failed to clarify and furnish the required information on the selection process of vendors, terms and condition under which advance payments were made, and logic behind the transaction.

Further, the auditor said they couldn’t comment whether these advance payment can be recovered until sought information comes in.

Importantly, the auditor also triggered alarm over the absence of robust documentation for recognising Rs 32.01 crore revenue during the quarter ending December 2018. According to them, about Rs 24 crore out of the reported revenue belonged to the first and second quarter.

The auditor had asked for an explanation from management over process involved in calculating charges for web development and maintenance services. Although these services are customised and specialised, the auditor said, “comparable market price and robust documentation for arriving at the basis of the price charged to the customer is not available”.

The auditor expressed inability to comment on revenue filed by the company in the third quarter as well as recovery of advance payments made to vendors during the same period till they access necessary documents and pieces of evidence.

Notably, this is not the first time that auditor had raised concerns over corporate governance at Infibeam. Last month, SRBC & Co. LLP had asked the management to conduct an independent investigation into two matters – merger and acquisition and other financial statement related matters materialised in the first quarter of FY19.

At that time, they also outlined that the impact of the merger on Infibeam’s FY18 reports and first-quarter earnings can’t be known until the investigation is concluded.

Back to back concerns over lack of documentation furnished by the firm from the auditor seem to be hinting towards all isn’t well at Vishal Mehta-led company.