Slater and Gordon (SGH) shares extended their deep losses yesterday after the company confirmed that the Australian Securities and Investments Commission is asking questions about its audit relationship with Pitcher Partners and admitted an accounting error had been found in its UK business.
The company shocked the market yesterday with the admission it had made mistakes in the reporting of revenue from its UK business going back to the 2011/12 financial year.
The shares plunged 25% to $3.78 yesterday, on top of the near 20% plunge last week. In fact the fall is something like 42% in the past six trading days.
The company said it would cooperate fully and was eager to resolve all ASIC queries as soon as possible.
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Yesterday’s statement to the ASX said its auditor Pitcher Partners was notified by ASIC on Friday that it intended to raise questions with the company directly.
Slater & Gordon also revealed that in its initial review of its accounting work it found a “consolidation error” in the reporting of cash flows in its UK business. Slater and Gordon said the cash flow problems were found as part of a detailed analysis of its financial information, which will be provided to the Australian Securities and Investments Commission.
The company also confirmed that the UK regulator, the Financial Conduct Authority, is investigating Quindell, the UK company that Slater & Gordon paid $1.3 billion for its Professional Services Division in March. Quindell is due to file revised accounts in the UK this week.
Slater & Gordon said its evaluation of the business was based on its assessment of the value of those assets and was undertaken with the assistance of audit firm Ernest and Young.
Slater and Gordon said that it’s UK operations reported receipts from customers on a gross, rather than net, basis from the 2011/12 financial year to the end of the first half of the 2013/14 financial year.
It also said the UK’s value-added tax was included twice in customers receipts in its financial statements in June and December os last year. But the company said the mistakes had no effect on net cash results for the division.
