A few weeks ago Nairametrics reported that the auditors of Oando Plc, Ernst & Young had expressed an opinion concerning the going concern status of the Oil Giant. Follow this link in case you missed it.
“Without qualifying our opinion, we draw attention to Note 47 to the financial statements which indicate that the Group reported comprehensive loss for the year of N37.8 billion (2014: loss N116.5 billion) and as at that date, its current liabilities exceeded current assets by N247.9 billion (2014:N329 billion). “The company also incurred comprehensive loss of N56.6 billion for the year ended 31 December 2015 (2014: loss N66.5 billion) and as at that date, its current liabilities exceeded current assets by N32.8 billion (2014: N34.7 billion). “The note indicates that these conditions, along with other matters, indicate the existence of a material uncertainty which may cast significant doubt on the Group’s ability to continue as a going concern.”
The auditors had cited Oando’s negative working capital of about N38 billion and losses of over N49 billion had providing doubts that the company could continue as a business. Comments like these will invite major scrutiny in other climes and will often attract a shareholder revolt. But not in Nigeria!!
As it’s so often the case, Nigerian businesses take matters like this in a unserious manner seeing it as mostly routine. We were thus not surprised at the latest response by the company regarding the auditors opinion. According to an article in the Vanguard, the company basically discarded the opinion as mere routine and of no material effect giving shareholders the impression that this was normal. It was a classic. Here is how Vanguard reported it.
In its reaction , however, Oando said the
‘reservations about our going concern status’ as stated by Ernst Young is a standard industry practice and reporting tool, adding that its stringent application was due to the reporting guidelines set by the Financial Reporting Council by auditors relating to firms that declare losses & impairments in a period of time.
This was classic Oando brushing aside any thought any lily livered shareholder might have about the auditors report. By claiming it’s a simple routine disclosure by the auditors and as such shouldn’t be taken seriously. The losses and negative working capital are just one of those things.
Interestingly, Oando had in April informed the Nigerian Stock Exchange and by extension shareholders that it was delaying the release of the results due to an unqualified opinion expressed by E&Y which by law falls under the scrutiny of the Financial Reporting Council of Nigeria. It is also not the first time Oando is receiving aa qualified opinion from an auditor. In 2014, the company paid dividends out of profits that it did not declare and did not have prior profits saved in the bank out of which it may have been eligible to pay dividends.
They probably figured no one remembers and even if they do it’s not enough to affect their share price or indeed their ability to finance their loans on terms that are quite admirable. Oando’s share price has nearly doubled since it declared one of the worst full year losses ever in the Nigerian Stock Exchange.
@Oando watching
Funny @ “standard industry practice”. Which industry?! This is a scary “Emphasis of Matter”, one of the forms of a “modified” but not “qualified” audit opinion. Going concern is a critical consideration in the process leading up to an audit opinion and the EoM means Oando was unable to clearly demonstrate it’s intention and ability to continue as a going concern. I would be very worried if I were a shareholder.
Nairametrics, this your post is misleading and unfounded. Please get a professional financial consultant/auditor to review it or at best, withdraw it.
Firstly, the auditor’s report was a modified report, not a modified opinion (huge difference between the two, by the way).
Secondly, I can’t see d connection between the forth paragraph (excerpt from Oando’s press conference) and your analysis of what they have said (fifth paragraph). You have imported your own content and sentiment, except you ddnt quote the conference properly.
Thirdly, the auditor’s objective is not to comment on whether a business is a going concern or not, it is merely to express an opinion on the truth and fairness of the financial statements as prepared by Oando, and as this financial statement was prepared correctly, the opinion was not modified. The emphasis of opinion paragraph (where the auditor pointed out the going concern issued) is, as correctly stated by Oando’s, a routine/value add requirement of IFRS/FRC. Notice that it references what has already been disclosed by OANDO in the Financial statement, the auditor is just emphasising it. Therefore if there is going to be any discussion of Oando’s going concern status, it should be based on the financial statements, not the emphasis of matter paragraph.
Lastly, you said: “Comments like these will invite major scrutiny in other climes and will often attract a shareholder revolt. But not in Nigeria!!” How????? Shareholder revolt? So bcos a company has negative working capital and cumulative losses I should sell my shares? Without considering the long term prospects, history and resilience of the company, management plan to manage the situation etc. Any small thing, Una go dey shout other climes, as if say we be dundee for Nigeria.
Please always get a professional to review your financial articles before publishing or better still, stick to the fact. Don’t do any analysis.
More grease to your elbow, we appreciate you.
(Apologies for typos)
Nice write up, but it’s quite obvious whoever wrote this isn’t a CA (or auditor) nor consulted one before publishing