Wednesday, October 20, 2021

Auditors’ red flags Business Botswana

In view of the red flag signaled by Business Botswana (BB)’s auditors, the confederation could be teetering on the edge of bankruptcy. BB functions as an association of employers and serves to promote the general business interests of its members across the country.  

Deloitte & Touche, who are identified as BB’s auditors in the confederation’s 2016 annual report, gave an account citing their view, with supporting reasons, that the financial statements do not give a true and fair view of the financial position of the confederation as at December 31, 2016, and of its financial performance and its cash flow for the year then ended as per the international Financial Reporting Standards (“IFRS”).

According to the auditors BB has been experiencing financial difficulties and has not been able to settle its obligations when they fall due. “This situation indicates that a material uncertainty exists that may cast significant doubt on the confederation’s ability to continue as a going concern,” reads the auditor’s note. This position, it says, may thwart BB from continuing its normal course of business operations. The auditor buttressed its judgment that “the financial statements do not adequately disclose this fact.” The finding by the auditors brings to life skepticism in BB’s ability to make enough money to stay afloat. If it does reel on under such limitations it begs the question of the degree to which it will carry the strain before it breaks. 

The auditors point specifically to the imbalance in the confederation’s current liabilities and current assets. The current liabilities exceeded current assets by P1 546 339. In comparison to the prior year the difference between current liabilities and current assets was P1 282 255. The figures indicate ill-health in the confederation’s financial standing. 

Moreover, though it appears that the confederation registered a significantly lower shortfall of its income against its expenses than it did in the previous year, the improvement did not change its stance. The confederation incurred a net deficit of P332 217 for the year ended December 31, 2016 in comparison to P2 242 818 in 2015. BB’s income statement depicts a rather undiversified revenue stream which hinges largely on subscriptions received from members. By the end of 2016 the amount received from members was P3 721 749, an increase of P121 from P3 721 870 in 2015. Other income came from seminars, trade fair and the national business conference to mention but a few. On the other hand salaries and related costs make up the largest share of the confederation’s total expenses.    The reliance on subscriptions, as the primary source of income, raises questions on whether payments become available as rapidly as obligations become due to make sure that they are aptly met. Subscription income is accounted for on a receipt basis which means that payment is not guaranteed. In other words, BB does not have income security in relation to subscriptions. 

It is worth noting that the profit on a sale of a fixed asset bolstered BB’s total earnings, recorded at P1 259 319. This was the second largest revenue after the members’ subscriptions but as a once off sale it does not guarantee future income. One could deduce that had this once off sale not been included the confederation would have recorded a deeper shortfall than specified above.  According to the annual report BB sold a parcel of freehold land and buildings (Plot 21165) located in Gaborone which was previously rented out and generating rental income for the confederation. The property was sold at an amount of P1 300 000.  The sale happened in May 2016.

 

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