The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
@parm, because I don't believe what they are saying. Such analysis can't be bullet proof. In my experience the big4 would never provide such a view - they caveat to hell this type of stuff. The company even flagged this as a risk in their prospectus - but now it is "bullet proof". A response like this just makes me question their integrity. But I can see why investors would take this at face value rather than trusting an anonymous BB post. Gla.
@Mrmarkymark, changing the accounting rules for this is not really realistic. And it is a bit theoretical as to whether there is any economic arguement to do so. I.e what is the economic benefit of encouraging companies to produce product before the customer wants or needs it?
@Mrmarkymark, they are both good examples. Bulk commodities such as oil and metals also may work. With these types of products companies can demonstrate that control has transferred and the seller has no further involvement rather than perhaps storage. The same doesn't apply to regular inventory which is expected to be, and will normally be, purchased back by the seller.
@calamari, the new control model in IFRS 15 only came into effect in 2018. AZ developed this model under the old rules. And I've seen many much larger companies "overlook" critical accounting issues when developing new products.
It's worth remembering that AZ is essentially a salesman - but in regulatory products. He has become rich from this venture regardless of what now happens. It is very easy to convince yourself that there is not a problem if it is very financially beneficial to do so (not that I'm suggesting this is a fraud). But I think that AZ is playing fast and loose on this point. Which is why I don't think this is "investable" until they have a track record.
@Wolf, yes frs102 is still risks and rewards based. But if the company has received its cash and this is not refundable then it has an argument to be recognising a sale. And if the inventory gets destroyed etc the company is still protected. So risks have also been transferred to some extent. But the control model under IFRS is particularly problematic. Because control is also about physical control - and the company still has the inventory on site. And the guidance under IFRS is generally much more comprehensive and tighter.
For new investors who haven't considered this:
The "true sale"model that is what syme offers allows a company to derecognise the inventory by recognising a sale. This is much more beneficial than showing this as a financing transaction.
However most companies account under what is termed IFRS. And under IFRS to recognise a sale they need to demonstrate that control of the inventory has transferred to another party. Legal transfer is not enough. This is the problem.
To recognise a sale when the company still has inventory on site and has the right (and expectation) to buy back the inventory is at best very aggressive. Because control has not transferred. Many auditors will be very uncomfortable with this. This is why the market for this product will be much less than anticipated. The more likely market for this will be in countries where accounting practices and enforcement are less strict - think Italy and the Middle East. And some companies will not be under IFRS and may be less concerned about the accounting.
This may be why syme has suffered some delays. It is also why I think that the company will never release the names of its customers. Why would any company want to publicise that it is applying aggressive accounting practices?
This may also explain why AZ has now announced a potential new initiative. He must know that the current offering has this problem. To his credit he did identify this as a risk in the prospectus.
Now let's see how quickly the rampers move this post down the BB.
@demon123, I'm guessing that many of us on this BB have families. And many of us have also learnt to multitask. If you want to debate a point, with Wolf or others, then please do so. But only accusing and criticising others is just a sign of low intellect.