Tuesday, September 22, 2020

Choppies woes with auditors blighted chain store’s financials

Mazars, the new external auditors of retail giant Choppies Enterprise Ltd has been forced to disclaim the company’s annual financial statement for the year ending 2019 after the predecessor audit firm PwC issued a disclaimer of opinion on the 2018 results.

The independent audit firm was appointed Choppies external auditors in February 2020, after the mass grocery retailer was ditched by the international auditing firm – PwC

PWC conducted physical counts of inventories during the June 2019 which details were available to Mazars. Mazars however, concluded that, as this was their first year on the group audit, they would have covered many more stores than PWC had. As a result, counts by PwC did not give Mazars the “alternative means” to verify the physical existence of the inventories at June 2019, hence the audit qualification, people familiar with the developments have revealed.

The disclaimer by PwC created a situation whereby subsequent audit opinions are forced to be disclaimed until the effect thereof on opening balance and comparative figures have been worked out of the reporting stream. Accordingly, 2019 audit opinion was disclaimed by Mazars.

“It is purely a technical issue and it has nothing to do with the authenticity and clarity on company’s financials during the said period” they added.

As Mazars were not auditors of the company or the group in the prior year (2017-18), coupled with the fact that Choppies’ previous auditor (PwC) expressed a disclaimer, Mazars could not independently verify the correctness of the opening balance and the comparative figures of 2019 of the group and company,” an analyst with a leading stock broking firm said.

Mazars also informed the stock exchanges that they were not appointed as auditors of Choppies Enterprise Limited in the prior year. “The predecessor auditor issued a disclaimer of opinion on the prior year consolidated and separate financial statements. Due to the effect of the matter noted above, we were unable to obtain sufficient appropriate evidence to form a conclusion whether the opening balances are free from material misstatements”, said Mazars.

The disclaimer was based on the inability by the predecessor auditor to formulate an opinion on the consolidated and separate financial statements because of the conflicting and different interpretations on the results of the legal and forensic investigations, management’s responses thereto and other evidence obtaining during the audit, he said.

It is clear from the reasons for disclaiming an audit opinion by Pwc on the 2018 results that the accounting for bulk sales transactions in South Africa and Zimbabwe as well as the accounting of certain business acquisitions in South Africa, formed a fundamental reason for the disclaimer.

Investigations by the Audit Risk Committee (ARC) during the past year also revealed no wrongdoings regarding the accounting treatment of the bulk sales or business acquisitions. These allegations cost the group in excess of P17 million, not accounting for managements time and deviation of focus.

The bulk sales and business acquisitions matters were subject of a “Focused Investigations” by Adv Meyerowitz as requested by the Board and the counsel made the point that, even if the allegations were true, there is no evidence that any one party personally benefited from the alleged fraud and the evidence provided suggested that the purchase prices in respect for the purchased stores were not artificially inflated.

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The Telegraph September 23

Digital edition of The Telegraph, September 23, 2020.