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54.5¢ slater & gordon limited

Bad news for the shorts?, page-67

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mike8654

694 Posts.

43

15/04/16

21:18

Post #: 17517848
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Originally posted by walkingeagle ↑

No, I didn't get out of the wrong side of the bed, Mike. I just have a thing about people making up stories that are intended to be harmful to others.

You don't appear to be thinking logically. E&Y know the eyes of Australia if not the world are focused on SGH. Their people in London work for, or are partners in, the same worldwide firm, which operates in something like 200 countries around the globe. E&Y cannot be anything other than acutely aware of all the bad press about SGH spread by people like you (although what you say personally won't affect anything for reasons I won't go into) and of the allegations (false in my view) about SGH running out of money and ceasing to trade . So E&Y could hardly claim they didn't know, when they signed their audit report, the company had been required to submit to its bankers its business plans and detailed financial forecasts going forward 12 months and probably a long way beyond (in outline at least). They therefore have to be even more careful than usual when reporting on the financial statements.

E&Y signed a clean audit - on 31 March 2016 - two weeks ago - of a major part of SGH's overall operations which is fundamental to the Group.

An auditor must be satisfied with the company's (and in this case the Group's) ability to continue as a going concern for the foreseeable future at the time he (or she) signs the audit report. "The foreseeable future" is generally taken to mean at least 12 months, although there are no hard and fast rules (or at least there weren't when I retired - I can't see why anything would have changed that gave shareholders less protection). If the auditor is not satisfied in this regard, he (or she) must refer to the matter in the audit report. Where the issue is uncertainty, it is usually dealt with by raising an: "emphasis of matter", setting out why the uncertainties exist and what assumptions have been made. The auditor will usually then go on to issue an unqualified opinion on the truth and fairness of the financial statements.

If, on the other hand, the uncertainty is so fundamental to the overall situation -and the auditor is not completely satisfied as the validity of the assumptions made by the directors in preparing the accounts on a going concern basis - the auditors report may be qualified, or in extreme cases a statement made that the accounts do not give a true and fair view.

Ernst & Young will have crawled all over the figures. Of that there can be no doubt. Cash flow and future performance will have been an issue of fundamental importance. After one set of people had crawled all over the numbers, another set will have done the same to see if they came up with different conclusions. Then someone different will have done the same all over again just to make certain. Then someone will REALLY have looked at the situation carefully. Then long discussions will have gone on well into the night and a line of communication will have been established with SGH's bankers - who won't have wanted unwarranted concerns about going concern to crop up in the accounts if there was no need. Nothing could have been finalised until SGH submitted its forward plans to Westpac and the other syndicate bankers. Which is what happened on 31 March 2016. And is what the company told us would happen.

Any problems so far?

I don't know the circumstances that caused the accounts of an unrelated company not to contain a statement by the auditors about going concern, when a short time later that company apparently collapsed. It's irrelevant to SGH's set of circumstances - as anyone who thought for even a second about the situation would realise. Maybe unforeseen circumstances arose; or a crystal ball was broken when it was consulted; or perhaps someone just made a cock-up. But those circumstances are totally irrelevant when considering the situation here.

Is what you're saying (assuming E&Y have office football teams that play in local Sunday leagues in their different locations around the world) that if an E&Y player in a game being played in Sydney misses a penalty, so too will one of the E&Y players taking one in London?

That wouldn't be too smart, would it Mr Mike?

Expand

"Ernst & Young will have crawled all over the figures. Of that there can be no doubt. Cash flow and future performance will have been an issue of fundamental importance."

The figures are not in dispute.

This issue is ongoing bank support. EY would likely not have been in a position to form any view that this "fundamental uncertainty" existed (given the SGH submission wasn't due until end of March), such that they were required to qualify the audit.

The parent audit was also not qualified as to going concern.

Neither of these facts changes the current risk profile for investors - which is that the company is unlikely to survive in its current form if the bank syndicate require repayment in early 2017, which is something they are apparently entitled to do if they are not satisfied with the restructure plan.

If you don't agree that withdrawal of bank support will have this effect on the company - can you explain where they will be obtaining replacement finance ?

Having said all that - I've gone long on the stock a couple of weeks ago because I'd give it a 60/40 chance of surviving. Given the reluctance of SGH management to provide investor information however, there's a fair amount of guesswork there.

SGH Price at posting: 27.5¢ Sentiment: Hold Disclosure: Held
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