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Page last updated Friday, 20 November 2009
"The Australian Investors' Association" is concerned at the misleading manner in which some public companies present their financial results to shareholders. We have just become aware of an apparently blatant example which clearly illustrates why we are concerned" - Ray Bricknell, National President.
If you purchased a can of baked beans in a supermarket labelled as containing 500 grams and later discovered that the can was half-full or only contained 300 grams, you would be hopping mad. If you discovered that this was not merely a one-off production error, but that the manufacturer was aware that the label did not fairly reflect the net contents, what do you think the ramifications would be?
The most recent interim report of The Australian Gas Light Company (AGL) proudly announced in bold type-face on the inside front cover: "The profit attributable to Proprietors for the half year ended 31 December 1999 was $181.7 million, up 55.8% from $116.6 million for the December 1998 half year." On page three, in small type-face in the body text, a single sentence read: 'The abnormal tax profit of $40.7 million represented the re-statement of the Group's net deferred tax balances in the balance sheet as a result of announced reductions in company tax rates.' In other words, as a result of future proposed lower company tax rates, the Group's future deferred tax liabilities, when due, would be less than anticipated. Such reduced tax liability, when due at some future unknown point in time, can hardly be construed as part of: "The profit attributable to proprietors for the half year." Yet both the AASB and ASIC says it can.
When examining the interim report filed with the ASX, it was further discovered that reserves for the six months diminished by $34.4 million. The reason for this reduction was not stated, because it is evidently not required by the ASX. Net operating profit for the half-year was therefore $141 million, while the real net result for shareholders, including the negative change in reserves, was actually $106.6 million. A far cry from the claimed 55.8% increase over the $116.6 million result for the corresponding previous half year.
While experienced investors appreciate that profit declarations can be a matter of opinion and that opportunities abound for creative accounting, directors should not be allowed to make bold declarations that are likely to lead the layman to a false impression.
Whilst the ACCC is an effective guardian of consumer interests, existing legislation as administered by ASIC, appears to lack sufficient teeth to similarly protect financial consumers. Other issues which are of concern to the AIA are: Risk disclosure in Prospectuses; Undisclosed 'soft-dollar' commissions to Financial Planners and company declarations of gross income as revenue, which in the absence of reference to profit, might be construed as such.
The Australian Investors' Association was curious as to whether investors buying shares in AGL on the strength of this bullish statement would have similar rights to the person who was misled by the incorrect labelling of a can of baked beans. Apparently not. Both the ASIC and the AASB informed the AIA that although such practices were undesirable, they were quite legal.
Shareholders who would like to support the Australian Investors' Association on these sorts of issues, are invited to call 1300 555 061.
For further comment please contact:
| Mr Brian McNiven, StockVal Services Pty Ltd Telephone: (07) 5572 1222 (BH) Telephone: (07) 5526 1918 (AH) Fax: (07) 5526 0399 E-mail: stockval@onethenet.com.au |
AIA Secretariat |
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