Audit raises serious observations on IESCO’s revaluation of operating fixed assets

ISLAMABAD : The financial performance of Islamabad Electric Supply Company (IESCO) over the five-year period from FY2020-21 to FY2024-25 reflects a mixed trend, marked by rising revenues but persistent profitability challenges, weak financial controls, and significant audit observations.
According to audit report of audit year 2025-26, AGP stated that IESCO’s sales revenue registered a steady increase, rising from Rs 161.19 billion in FY2020-21 to Rs 331.07 billion in FY2024-25. However, this growth was largely offset by a corresponding increase in the cost of electricity, resulting in fluctuating gross profit levels.
Gross profit increased from Rs 17.99 billion to Rs 36.97 billion during the period, with the gross profit ratio varying between 5.52 percent in FY2021-22 and 12.66 percent in FY2022-23, indicating only moderate gains in operational efficiency.
At the net level, the company’s performance remained inconsistent. IESCO reported a net loss of Rs 15.80 billion in FY2023-24 and Rs 1.41 billion in FY2024-25, while only a marginal net profit of Rs 177.68 million was recorded in one of the intervening years, highlighting continued financial instability.
The company’s working capital management also showed structural weaknesses. Although the debtor collection period improved significantly from 155 days in FY2020-21 to 55 days in FY2024-25, the creditor payment period remained considerably higher, ranging between 360 and 265 days. This mismatch indicates reliance on delayed payments to manage cash flows, thereby maintaining pressure on liquidity.
Documents further reveal prolonged non-regularisation of government contributions accounted as “deposit for shares” against circular debt clearance, raising concerns about transparency and capital structure management.
IESCO’s equity position also exhibited considerable volatility during the review period. Accumulated losses surged from Rs 69.47 billion to Rs 133.69 billion, reflecting sustained operational and non-operational deficits. Meanwhile, deposits for shares increased significantly from Rs 15.98 billion to Rs 67.06 billion, largely supported by government-related entities.
The surplus on revaluation of operating fixed assets rose sharply to Rs 157.69 billion in FY2024-25, primarily due to gains recognised during the year. This helped offset the negative impact of accumulated losses, enabling total equity to turn positive at Rs 96.85 billion in FY2024-25 after remaining under pressure in previous years.
However, auditors cautioned that despite improvement in the equity base, heavy reliance on non-cash government-supported deposits and mounting accumulated losses continue to pose solvency risks.
Serious audit observations were also raised regarding the revaluation of operating fixed assets. The audit noted that the exercise was conducted without comprehensive physical verification, tagging, reconciliation, or proper regularisation of legal ownership of land assets.
The revaluation, carried out by M/s KGT-A&K Consilium (JV), was of limited scope and did not include preparation of a TR-6 compliant Fixed Assets Register or verification of ownership documents. Only selective random inspections were conducted.
Out of 188 properties covering 5,392.54 kanals, discrepancies were identified in 54 properties (29 percent), relating to land area, valuation status, and possession. These inconsistencies were attributed to lack of reconciliation between finance and property records, absence of tagging, and weak asset management practices.
The audit also highlighted weaknesses in the management of contract liabilities. Unsecured contract liabilities amounting to Rs 41.68 billion were reported, including advances from customers, deposit works, and capital contributions. Although Rs 9.85 billion was transferred to deferred credit during the year, supporting records were found inadequate.
The Chartered Accountant pointed out that IESCO’s ERP system lacks the capability to generate party-wise or consumer-wise aging reports. Additionally, security deposit registers were poorly maintained at several field offices, and some charges were not aligned with prescribed customer service manuals.
Auditors observed that these deficiencies undermined the reliability of reported balances and increased the risk of misstatement in financial statements. The issue was taken up with management in December 2025 and reported to the Ministry in January 2026.
Management maintained that detailed records were available at field formations but acknowledged ERP limitations. However, auditors rejected the explanation, stating that international accounting standards require robust subsidiary ledgers and proper aging analysis, which cannot be substituted by fragmented manual records.
Further irregularities were noted in procurement practices. During FY2024-25, 29 construction contracts with an estimated cost of Rs 555.30 million were awarded at Rs 360.47 million, reflecting abnormally low bids ranging from 16.15 percent to 46.5 percent below estimates.
Despite exceeding Pakistan Engineering Council (PEC) thresholds, no documented price analysis was conducted, nor was additional performance security obtained. In some cases, bids exceeding rejection limits were not treated in accordance with rules.
Out of 83 high-tension (HT) civil works contracts awarded during the year, audit scrutiny of a sample revealed that cost estimates were processed without vetting by the Civil Division, and no civil engineer was included in bid evaluation committees.
The audit concluded that weak internal controls, inadequate documentation, and poor coordination among different departments have significantly affected financial transparency and operational efficiency at IESCO.
Overall, while the company has shown improvement in revenue growth and equity position, persistent governance issues, audit irregularities, and financial management weaknesses continue to pose challenges to its long-term sustainability.