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.