Prasol Auditors Flagged Manual Inventory Controls for Three Years

Prasol Chemicals Limited received modified auditor opinions on internal financial controls for fiscal 2024, fiscal 2025 and fiscal 2026. The fiscal 2026 report said controls over item-wise inventory records, corresponding values, inventory stages and overhead allocation needed strengthening, with relevant overhead-allocation details provided manually.

Why did Prasol auditors flag inventory controls for three years?

Prasol’s auditors identified substantially the same control issue at each March 31 year-end from 2024 through 2026. Internal financial controls over financial reporting are the processes intended to support reliable financial statements. The fiscal 2026 statutory-audit report said Prasol needed to strengthen controls over quantitative item-wise inventory details, corresponding values and the stages at which inventory was held at year-end.

The finding also covered allocation of overheads, meaning indirect costs assigned to inventory for financial reporting. The fiscal 2026 auditors said details for overhead allocation had been provided manually. The fiscal 2025 and fiscal 2024 reports likewise said controls over item-wise inventory quantities, values, inventory stages and overhead allocation needed strengthening, establishing a three-fiscal sequence rather than a newly disclosed fiscal 2026 matter.

What changed in the fiscal 2026 Prasol auditor opinion?

The fiscal 2026 opinion made the process limitation more explicit by stating that overhead-allocation details had been provided manually. Prasol said it uses separate reports to review inventory quantity and value because of system design and limitation. That arrangement is relevant to the auditors’ focus on connecting item-level quantities with values and inventory stages as of March 31, 2026.

The modification was limited to the identified internal-control matter, rather than described as an adverse opinion on the full fiscal 2026 financial statements. Subject to that matter, the auditors said Prasol had adequate internal financial controls in all material respects and that those controls were operating effectively at March 31, 2026. The opinion used control criteria established by Prasol with reference to the Institute of Chartered Accountants of India’s Guidance Note on Audit of Internal Financial Controls Over Financial Reporting.

How does Prasol currently review inventory and overheads?

Prasol currently relies on separate reports for inventory quantity and value because of the disclosed system limitation. The prospectus does not quantify the number of inventory items, reports, manufacturing locations or employees involved. It also does not report an inventory shortfall, a financial-statement restatement or a revised inventory valuation arising from the modified opinions for fiscal 2024 through fiscal 2026.

The control finding is not allocated to any business category. Prasol operates in one specialty-chemicals segment and says its products serve five end-use segments: performance chemicals; other performance chemicals, including lubricant additives and mining chemicals; pharmaceuticals; agrochemicals; and home and personal care. The disclosure does not identify whether the inventory-control issue relates more to acetone-based, phosphorus-based or other specialty chemicals.

When will Prasol implement an upgraded ERP system?

Prasol intends to implement an upgraded enterprise resource planning, or ERP, system at a suitable future time. An ERP system is integrated software used to manage business processes and data. The prospectus provides no implementation date, vendor, budget, project milestone or interim remediation programme for the planned upgrade as of the fiscal 2026 disclosure.

For the modified opinion to change in a later audit report, controls would need to address the auditors’ specified areas: item-wise quantities, corresponding inventory values, inventory stages and overhead allocation. Prasol does not say that an ERP installation alone would resolve every point, nor does it disclose that the auditors have pre-agreed the planned upgrade would remove the modification.

Prasol reported capital expenditure of Rs 41.382 crore in fiscal 2026, compared with Rs 23.749 crore in fiscal 2025 and Rs 21.8 crore in fiscal 2024. Those amounts covered additions to property, plant and equipment, intangibles, capital work in progress and capital advances. The company says its historical and expected capital expenditure is primarily for plant and equipment, without identifying any portion as ERP spending.

What do the repeated opinions mean alongside Prasol’s other disclosures?

Prasol states that the internal-control modification did not affect its operations or financial condition in fiscal 2024, fiscal 2025 or fiscal 2026. The prospectus separately says that the restated financial information contains no reservations, qualifications or matters of emphasis. That statement is distinct from the statutory-audit reports, which included both the internal-control modifications and separate emphasis-of-matter disclosures.

For fiscal 2026, the statutory auditors also highlighted Rs 2.922 crore of initial public offer expenditure recorded in other current assets. Prasol proposes to charge that amount to the securities premium account after completion of the initial public offer process, and the auditors said their report was not modified in respect of that matter. It is therefore separate from the three-year inventory and overhead-control issue.

Prasol’s top 10 customers accounted for 23.68% of revenue from operations in fiscal 2026, up from 21.96% in fiscal 2025 and 18.46% in fiscal 2024. That was an increase of 5.22 percentage points over two years. The customer-concentration disclosure is commercial information and does not establish an inventory-control error, but it shows the scale of revenue generated from the company’s largest customer group.

Conclusion

Prasol’s disclosures show a repeated internal-control modification across fiscal 2024, fiscal 2025 and fiscal 2026 concerning year-end item-wise inventory records, related values, inventory stages and overhead allocation. Fiscal 2026 added the specific detail that overhead-allocation information was provided manually, while Prasol confirmed that separate quantity and value reports are used because of system limitations.

The next disclosed development to watch is Prasol’s proposed ERP upgrade, which has no announced date, budget or implementation status. A later company update or audit report would need to show whether the new system, if implemented, has changed controls over inventory records and overhead allocation and whether the auditor’s modified opinion has been removed.