Audit – David Cairns

According to its 2000 annual report, tourism group Preussag had a ‘remarkable year’ and its ‘profit rose by 16.5%’. Closer inspection of the statements reveals four voluntary changes in accounting policy that added 10% to net profit, a fact unmentioned in the year’s highlights or the management report.

Furthermore, the statements do not include the required pro-forma restatement of the prior period in accordance with new policies.

In its 2000 financial statements, chemicals company Clariant has retrospectively written off goodwill of SFr675m (Pounds 281m) to the 1997 and 1998 income statements.

No reason is given (other than the write-off related to a 1997 acquisition) and it is not readily apparent from IAS 22 why the should be treated retrospectively.

In contrast, travel company Kuoni has reinstated goodwill written off to equity in 1995 and 1996. But while the new policy complies with IAS 22, the adjustment is an admission that the 1997, 1998 and 1999 financial statements did not.

The IAS Survey 2000 questioned Ernst & Young’s unqualified opinion on the financial statements of pharmaceutical SanoChemia when some segment disclosures were missing. It queried Deloitte & Touche’s unqualified opinion on Panafon’s use of the pooling of interests’ method for a cash acquisition.

Questions must be asked about the unqualified opinions of PricewaterhouseCoopers on the 2000 financial statements of Preussag and Clariant and KPMG’s on the 1997, 1998 and 1999 statements of Kuoni.

Compliance problems undermine the old IAS committee’s achievements and may hamper the new IAS board’s efforts to win further support for international standards. For example, while SEC commissioner Isaac Hunt has said that he wants to vote in favour of the use of IAS by foreign issuers in the United States, he needs to be satisfied about the way companies are applying the standards. The evidence suggests there is still some way to go before he can exercise his vote in favour of IAS.

  • David Cairns is founder of International Financial Reporting and former secretary general of the Interational Accounting Standards Committee.

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