11 small caps caught in ASIC annual report snare

Eleven small caps were snared in the corporate cop’s enquiries into annual reports last year, leading it rather than the companies involved to inform the market about asset write downs.

ASIC reviewed 2019 annual reports from 200 companies, listed and unlisted.

Of those, 47 companies received a please explain query on 80 matters, the largest number of which continue to relate to impairment of non-financial assets and inappropriate accounting treatments, the regulator said today.

“Directors and auditors need to focus on impairment of non-financial assets in financial reports to ensure that the market is properly informed about asset values and the expected future performance implied by those values,” it said in its review into the results of those enquiries.

“We continue to find instances where companies have made unrealistic and unsupportable assumptions about future cash flows.”

Since ASIC’s last public outing of companies accounting badly in August, it has had cause to out 13 more. The total adjustments for all 13 came to $590m.

Sometimes the companies told the market, and sometimes they didn’t.

Invocare (ASX:IVC) is a billion-dollar stock and had to restate a deferred tax balance, and Eco Energy Group is a publicly unlisted company which was forced to devalue IP.

These are the 11 small caps that ASIC pinged for incorrect accounts:

Botai Technology used to be called Wonhe Multimedia Commerce and is one of the crew of failed Chinese listings on the ASX. It was delisted by the market operator last week.

The company was forced to write down its trade receivables by $6.4m last year, before going into a permanent trading suspension in September.

Household chemicals and cleaning products maker Pental (ASX:PTL) had to write down its Country Life brand by $1.38m after ASIC questioned the supportability of earnings growth and capital spending forecasts used in testing brand names for impairment.

IT company PS&C (ASX:PSZ) impaired goodwill — measure of whether it has a good reputation or not — by $50m.

ASIC side-eyed the company’s free cashflow forecasts used in goodwill impairment testing.

Range International (ASX:RAN) impaired its non-current assets by $US5.4m after the corporate cop queried whether its financial forecasts could support the figures it gave in the last full-year report.

Recruiter Tempo Australia (ASX:TPP) had to do a large rejig of its accounts after ASIC had been through them, writing down goodwill by $9.23m, deferred tax assets by $5.32m, and intangible assets by $470,000 in its financial report for the half-year ended June 30, 2019.

ASIC forced iSignthis (ASX:ISX) to restate its funds held on behalf of merchants downwards by $6.3m to $2.3m.

iSignthis said the situation arose because ASIC had successfully asked the Federal Court to freeze the funds of two merchants.

It came around the same time the ASX began questioning its disclosures and the calibre of some of its clients, some of which are forex trading groups that are under investigation in Australia and overseas for unconscionable conduct.

It is currently suing the ASX for not letting the company out of a suspension.

Months after ASIC restricted Wollongong Coal (ASX:WLC) from raising money without issuing a full prospectus, it then ordered the miner to write down the value of its major assets at the Russell Vale and Wongawilli mines by $431m. It wasn’t convinced the mines were worth as much as the miner said they were.

THC Global (ASX:THC) is another which was overvaluing its reputation, having to impair its goodwill and intangible assets by $1.95m for the 2019 financial year.

Generation Development Group (ASX:GDG) provides development capital to financial sector businesses.

ASIC was concerned that instead of consolidating the assets, liabilities and profits in its life insurance business as it normally did, it split all the financials up. ASIC also raised concerns about the controlled life company disclosing that unlisted financial assets were valued by reference to quoted prices in an active market.

West Wits Mining (ASX:WWI) wrote down the total capitalised exploration and evaluation spending of $9.63m for its Derewo River gold project in Indonesia after ASIC raised concerns about its ability to recover costs when it hadn’t been able to obtain regulatory certification for the project since 2014.

ASIC made enquiries into The Environmental Group’s (ASX:EGL) business combination disclosures in fiscal 2019, and for its efforts the company changed how it accounted for acquisitions of RCR Energy Services and Baltec East. Acquisition costs of $313,358 previously recorded in goodwill have been expensed.