Saturday, September 26, 2020

Choppies Saga: International lawyers roped in to strengthen investigations

BY BONNIE MODIAKGOTLA

The troubled retailer Choppies Enterprises says it does not know when it will publish its delayed audited financial statements, but gave indication that it will report lower earnings amid audit queries, legal and forensic investigations.

In a detailed 8-page statement released on Tuesday, Botswana’s leading grocer said its external auditors, PricewaterhouseCoopers (PwC), had raised audit concerns and queries pertaining to the company’s compliance with International Financial Reporting Results (IFRS). Consequently, Choppies failed to publish its audited financial results for the year ended June 2018.

PwC was appointed as external Auditors beginning of 2018 after the retailer parted with KPMG, its long time auditors. Shortly after PwC was appointed, Choppies was warned for delaying publication of its interim results for December 2017, and the company blamed the delay on change of auditors.

However, this was just the beginning of troubles for Choppies, which also failed to publish full year financials, resulting in the company being suspended by Botswana Stock exchange and Johannesburg Stock Exchange. The company said PwC has been reassessing a number of past accounting practices and policies, adding that the auditors have identified numerous issues relating to current and earlier financial periods, which require independent verification and expert legal advice before disclosures could be made.

Choppies has summarized the Audit Completion Matters in three subject areas being audit concerns and queries, legal investigation and forensic investigation.  This is said to be a crucial stage to complete the audit as auditors need to review evidence obtained during the process before they can form the auditor’s opinion and signing off the audited financial statements.

“Certain matters which, in terms of the Company’s announcement dated 27 September 2018, were referred for investigation, analysis and advice, and which involved a number of commercial agreements to which the Group was party in Botswana during past years,” said Choppies Board in the latest statement.

“These include transactions with entities related to the Group where such relationships may not have been fully disclosed or considered in preparation of annual financial statements for past financial years and an independent forensic investigation into certain transactions to which the Group was party to.”

The company’s board revealed that progress has been made on issues queried by PwC, with the company substantially addressing the matters, and added that they expect detailed audit work to conclude during this month, and audit queries to be closed by end of April 2019.

Choppies says following concerns from PwC, they appointed a law firm to undertake and provide legal analysis and advice, and the undisclosed law firm has since concluded its work, with the report on the relevant matters tabled before the company’s board which is said to be considering the recommendations and remedial actions proposed.

“Based on initial analysis of the legal report, the Group expects to make additional disclosures (including disclosures relating to prior periods) in the Group’s 2018 Financial Results. Currently, the Board does not expect any impact on the 2018 Financial Results or financial position of the Group for financial years prior to 30 June 2018as a result of the Legal Investigation,’ the company said in the statement.

For the forensic investigations, Choppies has tapped an international law firm together with another international audit firm, and the investigation has already started but the company is not certain when it will wrap up. Until then, Choppies says the audit Completion Matters remains open.

“As all the Audit Completion Matters may impact the 2018 Financial Results, in accordance with relevant International Standards on Auditing, PwC will not be in a position to issue an audit opinion on a provisional basis. Consequently, the Board is not able at this stage to determine when the Company will be in a position to publish the 2018 Financial Results,” part of the statement read.

Furthermore, the company says the delay plaguing the 2018 financial results will also spill over to the publication of half year results which should be published latest end of March. The company’s board is said to be engaging with the BSEL to determine if both sets of financial results can be published simultaneously at a date to be determined based on conclusion of all the Audit Completion Matters.

Nevertheless, the company has attempted to provide the unaudited financial information, estimating that the consolidated net income after tax for the year ended June 2018 will be lower than that originally reported for the year ended June 2017 by P389 million. Moreover, Choppies says the unaudited estimated financial results after tax for the year ended June 2018 have been impacted negatively by, amongst others: charges of P166 million for impairment of goodwill and tangible assets, P93 million for impairment of trade and other receivables, inventory losses estimated at P127 million, and de-recognition of deferred tax assets previously recognized to the value of P14 million.

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