Auditors of consumer electronics and wearables brand boAt (operated by parent company Imagine Marketing Ltd.) have identified significant red flags in the company’s financial reporting and controls over three consecutive fiscal years — FY23, FY24 and FY25 — as revealed in its updated Draft Red Herring Prospectus (DRHP) filed ahead of an upcoming IPO.
The statutory audit, carried out by BSR & Co LLP, uncovered a series of discrepancies, compliance issues and governance concerns that are now being highlighted as part of the IPO disclosures.
Key Auditor-Flagged Red Flags (FY23–FY25)
1. Mismatched Financial Information
Auditors found that quarterly financial statements submitted to banks and lenders did not align with the company’s own books of accounts across FY23, FY24 and FY25 — a core inconsistency in reporting.
2. Misuse of Short-Term Borrowings
The audit report noted that short-term borrowings were used to finance long-term requirements of certain subsidiaries, contrary to standard financial norms and prudent financial practice.
3. Material Uncertainty Over Subsidiaries’ Liabilities
Two overseas subsidiaries — Kaha Pte Ltd and Imagine Marketing Singapore Pte Ltd — were flagged for “material uncertainty” regarding their ability to meet liabilities, particularly in FY23 and FY24.
4. Statutory and Compliance Lapses
- Arrears on statutory dues were reported in FY23 and FY25.
- Non-compliance with mandatory audit-trail requirements and lack of adequate accounting backups were pointed out.
- Physical verification of plant and equipment was not carried out properly in FY23.
5. Governance Issues and Director Remuneration
The auditors highlighted that managerial remuneration paid in FY23 exceeded limits prescribed under the Companies Act, though this was later regularised through shareholder approval.
These issues collectively raise concerns about internal financial controls, disclosure practices and governance frameworks at the company, particularly as it seeks to transition from a private startup to a publicly listed entity.
Company Response and Corrective Actions
BoAt has stated that it is addressing many of the audit concerns by reconciling mismatched figures, upgrading accounting systems for compliance and securing necessary shareholder approvals where needed. However, auditors have cautioned that there is no assurance that similar issues will not recur, signalling the need for stronger internal processes before the public listing goes ahead.
Why This Matters for Investors
These audit observations come at a crucial moment as boAt prepares a ₹1,500-crore IPO — consisting of a ₹500-crore fresh issue and a ₹1,000-crore offer for sale — a down-sized plan compared with earlier proposals. Business Standard
For potential investors, the flagged red flags underscore the importance of transparent financial reporting, robust internal controls and consistent governance, especially for a company asking public investors to participate in its equity. Moneycontrol
