Accounting and Audit

Patisserie and Interserve Administrations, plus Brexit latest

Yesterday the administrators (KPMG) of Patisserie (CAKE) issued their initial report. It makes for grim reading. The hole in the accounts was much worse than previously thought with an overstatement of net assets of at least £94 million. That includes: Intangible assets overstated by £18m; Tangible assets overstated by £5m; Cash position overstated by £54m; Prepayments and debtors overstated by £7m; Creditors understated by £10m. The accounts were clearly a total fiction. It is uncertain whether there will even be sufficient assets ...

FRC Revolution to Fix Audit and Accounting Problems

A major announcement that will impact investors was made yesterday by the Government. You may not have noticed it in the midst of political turmoil, but it’s worth studying. The Kingman review of the Financial Reporting Council (FRC) was published last December. It was a quite damning criticism of many aspects of the current regulatory regime that had resulted in so many audit failures and poor-quality financial reporting. See my previous blog post on this subject here: https://roliscon.blog/2018/12/18/all-change-in-the-audit-world/ There are few experienced investors ...

Another Accounting Scandal – Goals Soccer Centres

Yet another problem in accounting has been revealed at Goals Soccer Centres (GOAL). This morning they disclosed in a trading update the discovery of “certain accounting errors” and are reviewing their accounting practices. As a result, the board now expects full year results to be below expectations and publication of the 2018 results has been delayed. The even worse news is that they have breached their banking covenants so are having to have one of those difficult conversations with their bankers. The ...

Metro Bank, Improving Accounts, Patisserie, Telford Homes and GoCompare

Originally posted 28th February 2019 The latest example of a public company publishing misleading accounts is Metro Bank (MTRO). Both the FCA and PRA (the bank regulator) are looking into the “misclassification” of some loans which resulted in the bank overstating its regulatory capital. The result was that it has had to do an equity share issuance to bolster its capital. There was a very good letter to the FT today on the subject of improving accounting and audits from Tim Sutton. He ...

The Unstoppable Glacier of Government’s Concerted Actions?

By Cliff Weight, Director, ShareSoc We sometimes see things changing at a glacier-like pace. But once a glacier starts moving it has huge momentum and is unstoppable. My question is: is this metaphor applicable to the way Government is behaving with regard to business? The civil servants who drive Government policy transcend the short lives of Parliament. Taking this perspective what do we see? My take on this is as follows. The Financial Crisis terrified nearly everyone. We stared into the abyss. We were ...

Inconvenient AGM at Phoenix, Changes to “Going Concern” and GoCompare

I have been advised that life insurance and pension consolidator Phoenix Group (PHNX), a FTSE 250 company, is holding this year’s AGM in Edinburgh at 9.00 am. That’s a damn inconvenient time and location for most investors. Previous general meetings have been held in London where their registered office is located, although I am told that only one director and no shareholders turned up for the 2018 AGM. This is the explanation given by the company for the latest venue in the ...

Quindell (Watchstone), SFO Inaction and Tungsten Corporation

The Daily Telegraph this morning (25/2/2019) disclosed that law firm Harcus Sinclair is preparing a legal case for investors who lost money in Quindell (now renamed Watchstone). Quindell was once the largest AIM company – valued at £2.6 billion. But its accounts were extremely dubious and many investors think they were downright fraudulent. The company is still being investigated by the Serious Fraud Office (SFO) but only two days ago it was announced that the SFO was dropping investigations into Rolls-Royce ...

AssetCo Case and Grant Thornton Defense

I mentioned in a previous blog post yesterday the judgement in the case of the alleged breach of duty by Grant Thornton (GT) when acting as auditors of AssetCo Plc (ASTO) in 2009/10. See https://www.bailii.org/ew/cases/EWHC/Comm/2019/150.html for the full judgement. For those who have not had the opportunity to read all 300 pages of the judgement, here are some interesting points from it: It was conceded that the audit was negligent in a number of respects, but GT’s defense against the damages claim ...

Stephen Haddrill, CEO, FRC sees the light and gets tougher.

Stephen Haddrill, head of the Financial Reporting Council, appeared before MPs in one of a series of hearings held by the Commons Business, Energy and Industrial Strategy Committee to examine the future of the auditing industry in the wake of a number of scandals involving overstatement of profit and insolvency. When asked whether the FRC and other regulators were “too passive and reactive”, Mr Haddrill acknowledged that he should have been less afraid to challenge companies in the courts and less accepting ...

AssetCo, Patisserie, Stockpiling, Warehouses, Sheds, Brexit and Venezuela

A week ago, an award of damages of £21 million plus interest and costs was made against Grant Thornton for their breach of duty when acting as auditors of AssetCo Plc (ASTO) in 2009/10. See https://www.bailii.org/ew/cases/EWHC/Comm/2019/150.html for the full judgement. I understand Grant Thornton may appeal. These are the key sentences in the judgement: It is common ground that in those years the senior management team at AssetCo behaved in a way that was fundamentally dishonest. During the audit process management made ...