CPD rejects breach

Press, 26 August 1986, Page 22

CPD rejects breach

By

SIMON LOUISSON

in Wellington

Cable Price Downer’s chairman, Mr 818 Steele, does not believe his company has breached Statement of Standard Accounting Practice No. 12 “Accounting for interperiod allocation of income

The company’s accounts were tagged by auditors Arthur Young because of recognition of a future tax benefit of $1.7 million. In the auditors’ opinion the future realisation of the tax benefit of these losses does not have the degree of virtual certainty required by SSAP 12. Mr Steele’s statement, an addendum entitled “Answer to possible question on audit,” was added on to copies of the chairman’s address given to members of the press at the annual meeting yesterday. Mr Steele was clearly expecting some queries on the company’s accounts because of the attention it has received from the media and the Society of Accountants. He warned shareholders that if questions were not raised during the resolution on the directors’ report and the audited financial statements he would not accept them under general business. A reporter at the meeting, who is not a shareholder, attempted to ask a question, but was declined.

At the end of the meeting “The Press” attempted to question Mr Steele further on the audit matter; Mr Steele not only declined to answer, but attempted to grab the copy of the, statement from the reporter’s hand. However, Mr Steele later realised that other reporters had also been given copies of the statement and he desisted from his attempts to retrieve the statement.

The statement says that the qualification results from a difference of opinion between the directors and the auditors. The future tax loss includes $1,587,000 arising from Graham Hall Downer Pty, Ltd, and Australian subsidiary of Downer an Company. Mr Steele says that the construction company was subjected to substantial management restructuring and a reassessment of its partly completed contracts. Last year the company sustained a

heavy loss. Under Australian law the company has six years to recover those losses by profitable trading through that subsidiary’s historical associations.

The statement says that at the very least, sufficient profit can be made to offset the 1986 losses, and therefore CPD believes the result to be “virtually” certain. For this reason Mr Steele believes CPD has not breached SSAP 12.

“I therefore take issue with the New Zealand Society of Accountants whose pronouncements have seemingly been responsible for some commentators implying that our company has done something verging on the illegal. It has noL Its board of directors has faithfully reported to their shareholders,” the statement concludes.

A leading accounting academic who did not wish to be named, commented that if there is a dispute , between auditors and a company then the auditors must be believed.

“If there is any doubt then you must believe the auditors because they are detached and are usually very reluctant to qualify a company’s accounts unless there is a good reason,” he said. He said that in the case of CPD it came as a surprise to the accounting world because of Mr Steele’s normally conservative attitude to accounting. Mr Steele is a past president of the Society of Accountants and a former part-time lecturer in accounting at Victoria University. Some years ago the company had its report tagged for not equity accounting, and when CPD bought into Crown Corporation Mr Steele publicly stated his reluctance to equity account CPD’s share of Crown’s profit because it was not “real” profit.

It should also be noted that auditors do not normally tag a report unless it constitutes more than 10 per cent of the net profit. In this case the amount was $1.7 million compared with the net profit of $23.8 miillon. The pressure may have come from the fact that the profit was down 30 per cent on the previous year. The company was also a target of various take-over bids.