VerSe Innovation Navigates Auditor Concerns amid Financial Shifts
VerSe Innovation owns the popular apps Dailyhunt and Josh. The company is currently facing questions about its internal financial management. This follows an audit report for the financial year ending March 2024 (FY24). The auditor, Deloitte, pointed out several weaknesses in how the company handles its finances. However, VerSe leaders state these issues didn't significantly affect the accuracy of their financial reports. They also highlighted that the company has greatly reduced its losses and has set high goals for future growth.
Auditor Flags Control Weaknesses
Deloitte's audit report identified specific deficiencies in VerSe Innovation's internal processes. Concerns were raised about the company's system for choosing vendors. There were also concerns about how purchase orders are approved and payments are made. Deloitte suggested these issues could lead to wrong payments or even mishandling of funds. An instance was cited where a vendor claimed outstanding invoices totaling INR 35 Cr, which VerSe's internal records did not corroborate, indicating potential discrepancies dating back to FY22.
Further areas flagged included:
- Virtual Assets: Controls surrounding the purchase, sale, and management of virtual assets (like those related to live-streaming interactions) were deemed insufficient, posing risks of inaccurate revenue reporting or asset misappropriation.
- Expense Recognition: The methodology for ensuring all expenses were accurately captured within the correct fiscal year was described as weak, potentially leading to misstated costs.
- Revenue Recognition: Deloitte noted that controls over recording advertising revenues were not consistently effective. Specifically, a lack of proper client documentation for some campaigns could risk misstatements in reported revenue and trade receivables. The complexity of VerSe's business model, operating across publishing, advertising aggregation, and partnerships, was cited as a challenge in applying Indian accounting standards for revenue recognition correctly.
- IT Systems: General controls over the company's IT systems were also mentioned as an area needing improvement.
Financial Performance and Company Response
Financially, VerSe Innovation reported an 8.8% decrease in operating revenue for FY24, falling to INR 954.7 Cr from INR 1,046.8 Cr in FY23. However, the company significantly narrowed its net loss by over 56%, reducing it to INR 814.8 Cr from INR 1,878.4 Cr the previous year. This improvement was partly attributed to a 37.6% reduction in total expenses, including a substantial 41.8% cut in employee benefit expenses, driven mainly by lower share-based payment costs.
Responding to the audit findings, VerSe Innovation co-founder Umang Bedi emphasized that Deloitte provided a "clean audit opinion," deeming the FY24 consolidated financial statements "true and fair." While acknowledging the identified control weaknesses, Bedi stated, "[Deloitte's] report has clearly confirmed that these do not impact their opinion on the consolidated financial statements." He affirmed the company's commitment to rectifying the issues through measures like process workshops, enhanced documentation, and updated IT protocols.
Going Further and Auditor Change
Looking ahead, VerSe Innovation projects a robust recovery, with Bedi claiming a 70% surge in operating revenue for FY25 (approximately INR 1,622 Cr) and a further halving of net loss to around INR 400 Cr. The company aims to achieve break-even by the second half of FY26 (mid-FY26). Recent acquisitions, including digital newsstand Magzter and adtech firm Valueleaf Services, along with the launch of AI solutions arm NexVerse.ai, are expected to fuel this growth. In an important development, VerSe Innovation confirmed it will be changing its auditor, appointing PwC for future financial statement audits.
VerSe Innovation faces a pivotal period, balancing the need to address documented weaknesses in its internal financial controls with maintaining momentum towards ambitious growth and profitability targets. While the company assures stakeholders of the integrity of its past financial reporting, the transition to a new auditor and the implementation of corrective measures will be closely watched as it strives to solidify its operational foundations and achieve its financial goals.
