RSM Bird Cameron finds 15 per cent of audit reports lodged with the ASX include going concern related issues

RSM_Bird_Cameron_Logo@2xSeptember 25, 2012RSM Bird Cameron, one of the largest mid-tier accounting firms in Australia, has released its Audit Report following the completion of the 2011 reporting season. The analysis included 1042 listed companies, which accounts for 52 per cent of ASX listed companies, covering balance dates from June 2011 to May 2012. The analysis shows that 15 per cent of these audit reports included a going concern emphasis of matter paragraph.

Jason Croall, partner at RSM Bird Cameron, said, “RSM Bird Cameron wanted to find out what percentage of audit reports were impacted by going concern related issues.

“The analysis showed a significant increase from a similar audit report study conducted by RSM Bird Cameron in 2008, which could be an indication of potentially higher failure rates for companies and/or auditors being more conservative.”

In 2008, 315 companies were sampled, representing 17 per cent of ASX listed entities, and 6 per cent of audit reports lodged included a going concern emphasis of matter paragraph.

According to Croall there are two main drivers for this increase. The first is that 2008 was the start of the global financial crisis, and since then credit has become extremely tight. Companies have found it difficult to refinance and, with auditors looking to mitigate risk, this has led to a significant increase in the use of emphasis of matter opinions in audit reports.

The second is that legal actions against auditors are on the rise and auditors are looking at measures to decrease their potential exposure.

Croall said, “If credit markets tighten up, as some economists predict, then the going concern notations could prove to be correct. If however, credit markets stabilise and improve, many of these companies may continue to trade into the future.

“The challenge will be for investors who are trying to determine the difference between when a company has a real going concern issue and those instances where an auditor is acting conservatively.”

Croall believes that the number of audit reports with going concern related comments may increase to around 20 per cent in the next two years as auditors continue to mitigate the potential risk of being sued.

Croall said, “This may water down investors views surrounding these comments and ultimately make sorting through the bad stocks from the good quite difficult.”

Of the 6 per cent of companies that were identified as having going concern issues in 2008, that warranted a comment in the auditor’s report:
* 33 per cent failed and no longer trade on the ASX
* 22 per cent were taken over
* 45 per cent continue to trade on the ASX.

Croall said, “What this means is that companies with an emphasis of matter included in their audit report are not necessarily doomed to failure. Their inability to continue to trade and pay debts is, however, a concern.

“These companies are often seen as potential takeover targets as the share price is significantly low for a competitor to come in and make a play for the stock.”


About RSM Bird Cameron
RSM Bird Cameron is the largest mid-tier accounting firm in Australia with national ownership and profit sharing and offers a full range of specialist advisory services, including business consulting and advisory, assurance and advisory, taxation consulting, corporate consulting and turnaround and insolvency. RSM Bird Cameron is a core member firm of RSM International, the sixth largest network of independent accounting and consulting firms in the world.

ASX Listing Rules Need to be Strengthened for Oil or Gas Companies

Plans by the ASX to overhaul reporting guidelines for oil and gas companies has been welcomed by national accounting firm RSM Bird Cameron

According to RSM Bird Cameron’s Director of Assurance and Advisory David Wall, an overhaul of reporting requirements for oil and gas companies will give shareholders much needed protection.

‘The ASX disclosure requirements for oil or gas companies are not as heavily governed. The disclosure requirements for these companies are set out in the Listing Rules, which stipulate certain requirements, but do not provide a lot of guidance on the standards to be used when preparing disclosure reports or the consequences for poor quality or erroneous disclosures,’ said Mr Wall.

ASX Listing Rules require certain disclosures from listing companies. Those disclosure requirements can be either continuous disclosure or periodic disclosure. There are specific disclosure requirements for “mining entities” – companies involved in exploration or extraction of mineral, oil or gas. The ASX disclosure requirements for mining entities are governed by Chapter 5 of the ASX Listing Rules, which have differing disclosure requirements for companies involved in minerals to those involved in oil or gas.

The disclosure requirements for mineral companies are set out in Appendix 5A of the Listing Rules. The appendix is the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code). The JORC Code has been developed by the Australian Institute of Mining and Metallurgy and has the full weight of that body and the Australian Institute of Geoscientists behind it to regulate compliance by its members. The JORC Code requires a competent person with certain qualifications and experience to prepare the disclosure and also sets out guidelines on the criteria to be considered when preparing the reports. Failure to comply with the JORC Code can have serious consequences for both the company and the competent person.

Mr Wall says there is a need for a similar type of code for oil or gas companies, which would provide criteria to be considered when disclosure reports are prepared and a system to deal with breaches of the standards contained in the proposed code.

About RSM Bird Cameron
RSM Bird Cameron is the largest mid-tier accounting firm in Australia serving the middle market with technical and commercial expertise over the full range of specialist corporate and business advisory services including assurance and advisory, corporate finance, taxation consulting and turnaround and insolvency.