The JSE has publicly censured listed technology services group EOH Holdings over past financial reporting errors and imposed a R7.5-million fine – R2.5-million of which is suspended for five years.
EOH corrected a “substantial number” of prior reporting errors in its 2019 annual results and its 2020 interim results, the JSE said.
“The errors were material and extended over a number of years and, in correcting these errors, the company restated its annual financial statements for the year ended 31 July 2018 and restated the opening balances for the year ended 31 July 2017. Consequently, EOH restated its interim financial statements for the six months ended 31 January 2019 to correct these material errors.
“A lack of governance and oversight mechanisms, inadequate and ineffective controls and systems in prior financial periods which arose during the tenure of previous executive management resulted in irregularities and fraudulent contracts, premature revenue recognition, unsubstantiated tender payments, and lack of impairment of financial assets, despite impairment indicators that were present,” said the bourse.
“Further, EOH incurred VAT and tax liabilities on suspicious payments regarding fraudulent public sector contracts.”
The JSE said the financial impact of the restatements of previous errors were material. The total loss per share increased from 70c to R13.67/share, a 1 806% deterioration, while headline earnings per share of R2.83 decreased to a headline loss per share of R5.46, a 293% deterioration.
Failed to comply
In addition, intangible assets decreased by R384-million as a result of the errors, representing a decrease of 30%, and equity-accounted investments decreased by R291-million, representing a decrease of 35%. The corrections led to a 10% decrease in EOH’s total assets for 2018, and an increase of total liabilities of 7%.
The JSE found that EOH failed to comply with section 8.62(b) of the JSE listing requirements in that the company did not adhere to reporting standards in respect of the annual financial statements for the 2017 and 2018 financial periods.
Its decision to suspend R2.5-million of the fine for five years is on condition that EOH is not found to be in breach of material provisions of the listing requirements during the period of suspension.
EOH said it accepts the JSE’s findings.
“The current board of directors of EOH has spent a significant amount of time rebuilding credibility through establishing a robust governance framework, creating more transparency within the business and ensuring the accuracy and reliability of the financial information disclosed to the market, whilst continuing to work through the remaining legacy issues that it inherited,” it said.
“During 2019, the EOH board undertook a detailed review of the financial reporting processes and the resulting financial statements, including financial statements previously published, to ensure the integrity of the financial information provided to the market. The review uncovered discrepancies that spanned different accounting topics, including revenue recognition, initial asset capitalisation, subsequent recovery of assets initially recognised, the timing of the recognition of liabilities and the recognition of impairment losses.
“The review focused on the 2017 and 2018 full-year financial results as prepared by the previous executive directors and officers of EOH and approved by the previous board of directors of EOH, which has subsequently been substantially reconstituted.
“The review culminated in various restatements being included in the company’s annual financial statements for the year ended 31 July 2019 and consequentially in the financial results for the six months ended 31 January 2020 to correct the prior-period errors,” EOH said. — © 2020 NewsCentral Media
Duncan McLeod is Editor of TechCentral.
This article was first published on TechCentral, here.