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Audit reporting : time to take control

Two months ago, I wrote here that “current audit practice is valueless” (27th Jul 2018).   This is the lesson of Carillion, which should never be forgotten.  KPMG certified as “true and fair” its last published accounts, showing shareholder value (total equity) at £730m, but just over four months later the company wrote off £845m of its certified but intangible assets.  Since then, Carillion has been called the canary in the coal mine, so beware.

In the earlier blog, I reported the language used by KPMG when vetting the values placed by Premier Foods’ directors on its intangible assets: it called them “acceptable”, the meaning of which I challenged at the AGM.  Since then, I’ve looked at other audit certificates, including two issued by KPMG neither of which uses the term acceptable for the intangible assets.  In Vodafone’s accounts, whose intangible assets while big are less significant to the balance sheet, different terms are used to describe their values: “within a reasonable (but unstated) range” and “supportable in the context of the Company financial statements as a whole”.  In NAHL Group, a small company, the intangibles like Carillion’s exceed its total equity, so their value really matters, but KPMG offers no specific opinion, merely describing its review procedure. 


Blog Calendar


Was it wrong to worry?

  A year ago, I wrote an article (“An insistent drumbeat…..” 25th Aug 2017) noting a dozen major threats to share prices and discussed how to react.  Since then, stock markets have actually risen.  The FTSE 100 now stands at 7563, up 2.4 per cent in 12 months.  The FTSE 250 is 20665, up 4.7 per cent, the Small Cap is 5842 (up 2.9 per cent) and the AIM All-Share is 1093 (up 9.0 per cent).  It therefore seems fair, on this public platform, to question whether I was wrong to write what I did.


Having the rug pulled out.

Infrastructure funds took a hammering last autumn, when the possibility of a Corbyn Labour government was seen to threaten punitive nationalisation of their assets.  Many income seeking private investors might be worried about this, but others might not, so it’s a matter of choice.  Except for those in the John Laing Infrastructure Fund, though, whose choice has been made for them.


The Feeble Financial Reporting Council

 In 7 years of dealing with the FRC on behalf of the UK Shareholders’ Association, it was at best a disappointment.  Over time, I came to see it as wholly unhelpful to the needs of private investors and even hostile to them.  Now, at the request of the government, it is being examined by Sir John Kingman.


Current audit practice is valueless

“The evidence suggests that audit quality is not up to the level expected by private investors.”  These were my words, in response to a brief survey of UK Shareholders’ Association members prior to a recent half day presentation by PwC on how its audits are conducted.  These and similar comments by other members were reported, but not addressed, in PwC’s presentation.


The scandal behind Beaufort Insecurities

 At the beginning of March, the Financial Conduct Authority (FCA) put stockbroker Beaufort Securities and its custodian BSL into insolvency.  As a consequence, many personal investors have lost access to their assets.  For most of them this will continue for much longer and some will suffer significant financial loss. 


Insulting behaviour at Interserve plc

 Some boards of directors reach out to their private investors.  Others demonstrate contempt.  The latest shocking example of the latter coming to my notice is the board of Interserve plc, chaired by Mr Glyn Barker.  It has called a meeting for 8.0 am (yes, really), one purpose of which is to exonerate directors for a breach of the company’s rules.


EMIS Group plc

 This is a company in which, as I write, I hold some shares.  They were bought on a professional recommendation and that source (plus one other) is currently saying ‘hold’, but I’m not sure I will.  The share price suffered a sharp fall in January, from which it has yet to recover and the question is, have the reasons for this been adequately addressed and all appropriate action taken?

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