direction lacking on compass accounts

Direction lacking on Compass accounts
November 2, 2011 - 8:37PM

Comments 10

Those who have not yet had the pleasure of an acquaintance with Compass Resources have missed something very special: a shareholder train wreck of almost unrivalled proportions which, gobsmackingly, remains uninvestigated.

That story is for another day. Suffice it to say that although shareholders were obliterated in the most questionable of circumstances, Compass chairman Gordon Toll and a US hedge fund appear to have done quite nicely.

Adding insult to annihilation — or shall we coin a new word, shareholdericide — Compass slid through its half-year financial report yesterday under cover of Melbourne Cup darkness.
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The Compass ‘‘half-year’’ report boasts that Neil Guest, its chief financial officer, has 30 years of accounting experience. But has he learnt how to count up to six months yet?

You see, the Compass ‘‘half-year’’ report covers only the 42 days from May 20 to June30, 2011, and ignores the 139 days from January 1 to May 19.

Section 323D of the Corporations Act might have assisted Mr Guest with the arithmetic as it clearly states, ‘‘A half-year is the first six months of a financial year.’’

But wait! According to the iconoclastic Richard Swann and Grant Thornton — respectively Compass’s sole director and auditors — the six months of a half-year is not six months if you garner an accounting exemption order from ASIC.

But we hasten back to our story. The Compass ‘‘half-year’’ report — actually an 11.5 per cent-of-the-year report — also omits to disclose any comparative financial information and again this is all because of ASIC apparently.

Note 1 states that: ‘‘To comply with [ASIC’s] order Compass Resources is required to only prepare financial statements for the period May 20, 2011, to June 30, 2011.’’ One wonders if Compass could be setting the scene for a run on ASIC orders by other listed public companies that only feel like reporting for a part of the year.

Do we have a trend: ‘‘Part-time reporting’’? Should companies now prepare their financial reports for anything between 0.1per cent and 99.9 per cent of the financial year? Or perhaps, like Ansett, they shouldn’t bother at all.

The Compass half-year report for 2011 is also a must-read for students of the law because Compass and its auditors provide a unique insight into how one complies with the law:

‘‘The financial statements and notes ... are in accordance with the Corporations Act including: (1) Not complying with Accounting Standard AASB 134 Interim Financial Reporting.’’ Let’s paraphrase Compass: ‘‘We have complied with the law by not complying with the law.’’ Just checking the Shanahan’s ... no evidence of the ‘‘Clayton’s treatment’’ there.

This is a novel approach indeed. Non-compliance with accounting standards is now the key to achieving compliance with the laws of financial reporting and apparently an ASIC exemption order is responsible for this new development.

Not satisfied with the creativity of linking ASIC’s exemption order to a 42-day financial report with no comparatives, the auditors go even further by explaining that: ‘‘Due to [ASIC’s] order we were unable to obtain sufficient appropriate audit evidence to satisfy ourselves as to the opening balances as at May 19, 2011, and the impact, if any, on the result for the period ended.’'

But surely some financial reporting must be better than none. Shareholders of Compass should be grateful for their 42-day disclosure. The Compass 11.5 per cent-of-the-year report is the first financial report they have seen since Ferrier Hodgson took over at the helm of the company in January 2009.

For reasons unknown, Ferrier Hodgson never prepared the Compass financials for the year ending December 31, 2008, and half-year ending June 30, 2009, and ASIC doesn’t seem to care that these accounts are missing from its public data base.

Rather, the regulator chose to celebrate the missing Compass accounts on February 8, 2010, by giving Ferrier Hodgson an accounting exemption order not to produce financial reports again until the half-year to June 30, 2011. That was around the same time that ASIC was busy purging instruments of accounting relief from its database so we can no longer view them.

A BusinessDay investigation has found ASIC’s accounting exemption order for Compass Resources Limited, notwithstanding ASIC’s approach of treating these orders as state secrets. The Compass order does not include any words to the effect that Compass financial reports can ignore all days up until and including May 19, 2011.

Has someone at ASIC given the green light before Compass/Grant Thornton has opined on the effects of the ASIC exemption order? It’s all ASIC’s fault apparently that the Compass 11.5 per cent-of-the-year report is the way it is.

The review of the ASIC exemption order also brought back a recent memory of another ASIC exemption order for Evans & Tate Limited. As in the case of Compass, the Evans & Tate order was given to Martin Jones of Ferrier Hodgson. And as in the case of Compass, the Evans & Tate order was signed off by the same ASIC officer, Lorraine Mizzi.

Evans & Tate, as reported in these pages previously, sold a winery to then ASIC chairman Tony D’Aloisio shortly after the issue of its ASIC accounting exemption order.

The winery sale by a financially distressed company being regulated by ASIC to the chairman of ASIC was apparently approved by the Treasurer as consistent with the maintenance of the high standards of ethical behaviour expected from public servants.

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Comments

10 comments

This is GOLD

Bill - November 02, 2011, 3:26PM

So who is watching the watchmen?

cvc | dural - November 02, 2011, 3:38PM

Fox in charge of the hen house - what do you expect?

Dubious | mycastleintheair - November 02, 2011, 3:46PM

oh gawd please tell me the last paragraph about the ASIC Chairman buying a distresed company he was regulating is some sort of sick joke.

Aton | Bris - November 02, 2011, 3:47PM

What's with the new format, disjointed, "wait there's more latter"
story telling style ?. I thought that belonged to the Tele.

Bob - November 02, 2011, 4:14PM

There has been some criticism that the 'Occupy Movement' in Australia has not been able to articulate what their gripes are.

Reference to the above and just a few household names drawn from the SMH the last 6 months may assist.

According to Michaels Pascoe (SMH 23/10/11) Ikea paid $2.5m tax in Australia on revenues of more than half a billion ($556.6m). Whilst Stuart Washington (SMH 2/5/2011) noted Google paid $1m tax on advertising revenues estimated at $ 741million.

Then there is the hard done by Centro director who as Michael West noted (SMH 31/8/11) the judge deemed had suffered enough reputational damage by the fiasco despite signing off on accounts that were BILLIONS out -just a small fine to be paid by someone else. And nothing else. On the same day a Warnambool man was sentenced to 18 months jail for causing $5900 damage for nicking 30 cans of grog from a local store.
Or what about the Babcock and Brown $5billion disappearing trick without nary a public trace of an ASIC action so far or the Myer float and TPG's shunting the hundreds of millions of profit to off shore tax havens leaving an unpaid tax bill in of $452million with nil chance of recovery.

Most of us know the cards are stacked against the little guy. The Occupy Movement has decided to try and do something about it. Good luck to them, but I won't holding my breath waiting for change.

petercw | sydney - November 02, 2011, 4:36PM

Hang on, be fair, if for various reasons outside your control you can't file a company return, or prepare a tax return, because you have no idea what's happening, then no-one should be able to try to make you do so, because to do so would have you knowlingy signing a false statement which is against the law.

Mandelbrot | Sydney - November 02, 2011, 5:01PM

@MandleBrot If you run a public company. You are at risk breaching the corporations act for director's duties, if you are not managing the books in a competent way. Even if the dog ate it. You didn't take suffiicent precautions. So, frankly, where there is smoke...

Bob Timmins | Sydney - November 02, 2011, 5:48PM

Never let facts stand in the way of a comment.
Please don't confuse revenue with profit.
Yes you may be right about companies minimizing their tax. But providing they are doing it "legally" they are no different to the average tax payer who claims things in their return.
In most cases the companies are doing what they are allowed to do by the tax laws. ie The ATO and government.
Complaints such as these and those levied against banks in the GFC are aimed at the wrong people. They merely do what they can within the regulations. The fact that banks and other institutions could develop financial products with no asset backing is ludicrous. They were always going to fail, especially when we started seeing derivatives of derivates. These are not "investments" they are simply a bet where the leverage is enormous.
Why did Australia do better than most other parts of the world during the GFC?
Because we had tighter regulation.
Banks are no different to the tax payer who claims dry cleaning or home office expenses. They will stretch the boundaries as far as they are game.
We need stronger over sight of these businesses with punitive measures to back it up.
Managers who are dills should be banned from the industry, and those who are determined to be crooks, put in jail the same as if they were armed robbers.

The Bigger Picture | Melbourne - November 02, 2011, 6:04PM

This is unusually thorough and well researched reporting by the SMH... does this trend dare continue? And, I might add, an excellent pick up. Well done and keep it up.

Jason | Sydney - November 02, 2011, 6:08PM

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