PPC audit report ‘unprecedented’

PPC’s independent auditor Deloitte has issued an unprecedented highly critical report that highlights “material weaknesses in internal controls over financial reporting” as one of several key audit matters that need to be addressed by the JSE-listed cement and lime producer.

Deloitte confirmed in its independent auditors’ report, which formed part of PPC’s financial results statement for the year to March 2020 released earlier this month, that its external audit confirmed that there has been “a material breakdown in internal controls over financial reporting”.

“In particular, severe gaps in controls over financial reporting, such as the consolidation process, the preparation and review of the annual financial statements and the completeness and accuracy of information, were identified,” it said.

Deloitte added that challenges were experienced in obtaining sufficient and appropriate evidence, particularly in areas requiring judgement and estimation.

“We have concluded that the breakdown in the controls over the financial reporting process is a key audit matter due to the significant and pervasive impact this had on the overall timing, level of expertise and effort associated with the current year audit of the financial statements,” it said.

Scrutiny

Deloitte said its audit required extensive involvement from senior audit personnel, auditor’s internal specialists and individuals with specialised knowledge.

The firm listed a number of procedures undertaken to respond to and address the impact of the breakdown in internal controls over financial reporting.

It then concluded: “Based on the audit procedures performed and the level of expertise and effort associated with the current year audit, we are satisfied that our audit procedures were sufficient to mitigate the impact of the breakdown of controls over financial reporting.”

Other key audit matters highlighted by Deloitte include impairments, the accuracy of the hyperinflation accounting for the PPC Zimbabwe Limited results, the valuation of Zimbabwe blocked funds owned by PPC Limited, the value of the Zimbabwe derivative financial asset on legacy debt, and “prior year restatements – material errors”.

There were eight prior year restatements in the financial results, including errors in its financial results for the year to end-March 2019 that resulted in an increase in PPC’s headline earnings per share.

Following the publication of PPC’s delayed latest annual financial results, Moneyweb asked PPC CEO Roland van Wijnen for comment on the possible impact of these restatements on the company’s credibility and the mistrust in the financial results they possibly created among investors.

Van Wijnen said PPC had “one of the most diligent audits I have seen in my life”, adding that he views this issue slightly differently despite understanding why investors may lack confidence in a company with prior year restatements.

“But you can turn it around and say maybe this company actually is diligent about its current audits and very frank and open about corrections that had to be made in the past.

“I see it as a positive rather than a negative although I understand the concern that there is,” he said.

‘Not up to scratch’

PPC chief financial officer Ronel van Dijk also addressed the prior year restatements during a presentation to analysts.

Van Dijk admitted that although some of the prior period restatements had a lot to do with technical interpretations of complicated accounting matters, PPC has to “look inward and admit and accept that we have internal control weaknesses and our financial reporting processes are not up to scratch”.

“This [had] been identified a number of months ago and we have therefore initiated a number of improvement projects,” she said.

This article first appeared on Moneyweb and was republished with permission.

For more news your way, download The Citizen’s app for iOS and Android.