Deloitte says the company has been overstating its assets and not providing adequate information for proper assessment of its financial health.
Deloitte has been auditing ARM's books for 10 years.
The auditors’ revelations come barely a week after ARM issued a press statement assuring its shareholders that its turnaround plan was on track.
Cement maker ARM #ticker:ARM has been misrepresenting its financial statements to conceal stale subsidiary debts amounting to Sh21 billion, its auditors have said.
Accounting firm Deloitte, explaining its decision not to express an opinion on the cement firm’s 2017 annual report, says that the Nairobi Securities Exchange (NSE)-listed company has been overstating its assets and not providing adequate information for proper assessment of its financial health.
Deloitte has been auditing ARM's books for 10 years.
“We do not express an opinion on the accompanying consolidated and company financial statements of the group,” the auditors say.
The auditors say some Sh21.5 billion due from ARM’s subsidiary, Maweni Limestone Limited, has been long outstanding, but the cement maker has not made provisions for it.
“No subsequent payments have been received from the subsidiary as at the date of this report (May 30, 2018) and we were unable to obtain sufficient appropriate audit evidence about the recoverability of these amounts,” the audit firm says.
Deloitte says had the ARM management adjusted for the impairment, the provision for doubtful debts in the company’s profit or loss and accumulated provision for doubtful debts in the company statement of financial position would have increased by Sh21,559,651,000.
Besides, the auditors say ARM may have overstated the value of some of its assets, including at the Maweni Limestone subsidiary, which the cement maker says are worth Sh26.4 billion.
The carrying value exceeded the worth of the assets in use or liquidation. The auditors were also sceptical of ARM’s recovery plans, which are hinged on raising capital and debt restructuring.
“By the time of concluding the audit, we had not obtained sufficient appropriate evidence that any of the initiatives implemented by the directors had been concluded and would reasonably guarantee the ongoing operations of the business to meet its future obligations as they fall due,” the auditors say.
The auditors’ revelations come barely a week after ARM issued a press statement assuring its shareholders that its turnaround plan was on track.
“This restructuring process is underway; in the next few weeks we will be able to share with you the way forward for the business,” the company said.
Deloitte had said in ARM’s financial results for the year ended December 2017, which preceded the annual report, that the denial of opinion was based on the cement manufacturer’s worse performance in the period.
The audit firm’s report is a rarity for pointing out a lack of transparency in a client’s financial accounts.
Deloitte is set to be re-appointed as ARM’s external auditor for this financial year.
Scores of NSE-listed firms, including Mumias Sugar Company #ticker:MSC and Uchumi Supermarkets #ticker:UCHM, have in recent years been entangled in major reporting scams that their auditors said were impossible to unearth, shifting the burden of responsibility to the boards of directors.
ARM says it remains committed to integrity. The company’s biggest task, however, remains reversing the major losses that have thrown it into an existential crisis.
The cement maker’s net losses in the year ended December widened 2.3 times to Sh6.5 billion and short term liabilities exceeded current assets by Sh13.4 billion.
ARM is yet to finalise its asset sales, new capital raising, and debt restructuring it says are key to turning around its operations.
The company has recently said it is expanding the list of assets to be sold in the near term but did not specify them.
ARM had earlier announced the planned sale of its non-cement businesses, including subsidiaries involved in fertiliser and mineral production.
The cement manufacturer’s sales declined 32 per cent to Sh8.6 billion in the review period amid the vicious price wars in the Tanzanian market where prices fell 30 per cent.
The company’s deepening losses have eaten into its shareholder funds, which dropped by Sh7 billion to Sh20.7 billion.
