Keya Cosmetics accounts come under BSEC scanner 

The Bangladesh Securities and Exchange Commission (BSEC) will carry out a special audit of Keya Cosmetics' financial statements for the last five years as the market regulator suspects mismatches in the accounts that misled investors.

Now the commission will appoint an auditor to examine the amalgamation scheme whereby Keya Cosmetics Limited acquired assets, liabilities, and equities of Keya Spinning Mills, Keya Cotton, and Keya Knit Composite Limited.

The audit firm will look into the audited financial statements of these entities prepared ahead of their amalgamation. In 2015, the market regulator approved Keya Cosmetics to go forward with the amalgamation scheme. 

The BSEC has already sought quotations from its panel auditors for appointing an auditor.

On 10 October, the BSEC formed a three-member committee to estimate the cost of the audit and chalk out the issues to be scrutinised, according to sources in the commission.   

Company Secretary Md Noor Hossain told The Business Standard that they are not aware of the special audit and did not get any letter in this regard.

"The company continues its business as usual up until now," he added.  

According to the Dhaka stock exchange (DSE), the company has loans of Tk1,873 crore till 30 June 2020.

In the special audit, the last 10 years' related party transactions with Keya Cosmetics Limited will undergo scrutiny.

The auditor will also go through segment-wise financial disclosures of cosmetics, cotton, spinning, and knit composite units of the company over the last five years.

Also, it have will have the mandate to examine the balance sheets and other parts of financial statements to ascertain whether the assets, liabilities, and equity of the company were present appropriately.

Keya Group is an example of how a business can grow fast in Bangladesh and fall at an even faster pace.

Abdul Khalek Pathan, a professional driver turned entrepreneur, founded his detergent and soap business in the 1990s, which grew to the top tier in the local market alongside achieving export trophies in the early 2000s when the business got listed on the stock market.

It expanded to the export-oriented textile and apparel business seriously and also achieved success there.

But, aggressive financial planning, misreporting of assets and liabilities, and the amalgamation of troubled assets with the listed company altogether resulted in the fall of the once-a-glorious entity.

During the special audit, all the bank statements for receiving from customers and payments to the suppliers along with all of their monthly value-added tax (VAT) returns of sales and export realisation certificates for revenue recognition over the last five years will also face scanning.

The auditor will also scrutinise the role of the board of directors and all management committees in ensuring good governance of the company.

In April this year, the commission sought some documents and explanations from Keya Cosmetics Ltd.

Keya's shares closed at Tk6.40 each on Thursday at the DSE.

According to the DSE, the sponsors and directors hold 46.27% shares in the company, whereas institutional investors have 10.42% and the general investors have 43.31% shares as of September this year.

Keya Cosmetics Ltd, which owns the group's soaps and detergent business alongside most of the textile units, had absorbed an asset meltdown in fiscal 2018-19 since the accounting regulator ordered the company to write off fake assets amounting to over Tk1,000 crore.

Due to a one-off annual loss bigger than its paid-up capital, Keya Cosmetics' net asset value came down to near zero, which saw a slight improvement with some profits posted for fiscal 2019-20. Thereafter, the company did not publish any more financial statements.