Direction lacking on Compass accounts

THOSE who have not yet had the pleasure of an acquaintance with Compass Resources have missed something very special: a shareholder train wreck of almost unrivalled proportions which, gobsmackingly, remains uninvestigated.

That story is for another day. Suffice it to say that although shareholders were obliterated in the most questionable of circumstances, Compass chairman Gordon Toll and a US hedge fund appear to have done quite nicely.

Adding insult to annihilation – or shall we coin a new word, shareholdericide – Compass slid through its half-year financial report yesterday under cover of Melbourne Cup darkness.

The Compass ”half-year” report boasts that Neil Guest, its chief financial officer, has 30 years of accounting experience. But has he learnt how to count up to six months yet?

You see, the Compass ”half-year” report covers only the 42 days from May 20 to June 30, 2011, and ignores the 139 days from January 1 to May 19.

Section 323D of the Corporations Act might have assisted Mr Guest with the arithmetic as it clearly states, ”A half-year is the first six months of a financial year.”

But wait! According to the iconoclastic Richard Swann and Grant Thornton – respectively Compass’s sole director and auditors – the six months of a half-year is not six months if you garner an accounting exemption order from ASIC.

But we hasten back to our story. The Compass ”half-year” report – actually an 11.5 per cent-of-the-year report – also omits to disclose any comparative financial information and again this is all because of ASIC apparently.

Note 1 states that: ”To comply with [ASIC’s] order Compass Resources is required to only prepare financial statements for the period May 20, 2011, to June 30, 2011.” One wonders if Compass could be setting the scene for a run on ASIC orders by other listed public companies that only feel like reporting for a part of the year.

Do we have a trend: ”Part-time reporting”? Should companies now prepare their financial reports for anything between 0.1 per cent and 99.9 per cent of the financial year? Or perhaps, like Ansett, they shouldn’t bother at all.

The Compass half-year report for 2011 is also a must-read for students of the law because Compass and its auditors provide a unique insight into how one complies with the law:

”The financial statements and notes … are in accordance with the Corporations Act including: (1) Not complying with Accounting Standard AASB 134 Interim Financial Reporting.” Let’s paraphrase Compass: ”We have complied with the law by not complying with the law.” Just checking the Shanahan’s … no evidence of the ”Clayton’s treatment” there.

This is a novel approach indeed. Non-compliance with accounting standards is now the key to achieving compliance with the laws of financial reporting and apparently an ASIC exemption order is responsible for this new development.

Not satisfied with the creativity of linking ASIC’s exemption order to a 42-day financial report with no comparatives, the auditors go even further by explaining that: ”Due to [ASIC’s] order we were unable to obtain sufficient appropriate audit evidence to satisfy ourselves as to the opening balances as at May 19, 2011, and the impact, if any, on the result for the period ended.”

But surely some financial reporting must be better than none. Shareholders of Compass should be grateful for their 42-day disclosure. The Compass 11.5 per cent-of-the-year report is the first financial report they have seen since Ferrier Hodgson took over at the helm of the company in January 2009.

For reasons unknown, Ferrier Hodgson never prepared the Compass financials for the year ending December 31, 2008, and half-year ending June 30, 2009, and ASIC doesn’t seem to care that these accounts are missing from its public data base.

Rather, the regulator chose to celebrate the missing Compass accounts on February 8, 2010, by giving Ferrier Hodgson an accounting exemption order not to produce financial reports again until the half-year to June 30, 2011. That was around the same time that ASIC was busy purging instruments of accounting relief from its database so we can no longer view them.

A BusinessDay investigation has found ASIC’s accounting exemption order for Compass Resources Limited, notwithstanding ASIC’s approach of treating these orders as state secrets. The Compass order does not include any words to the effect that Compass financial reports can ignore all days up until and including May 19, 2011.

Has someone at ASIC given the green light before Compass/Grant Thornton has opined on the effects of the ASIC exemption order? It’s all ASIC’s fault apparently that the Compass 11.5 per cent-of-the-year report is the way it is.

The review of the ASIC exemption order also brought back a recent memory of another ASIC exemption order for Evans & Tate Limited. As in the case of Compass, the Evans & Tate order was given to Martin Jones of Ferrier Hodgson. And as in the case of Compass, the Evans & Tate order was signed off by the same ASIC officer, Lorraine Mizzi.

Evans & Tate, as reported in these pages previously, sold a winery to then ASIC chairman Tony D’Aloisio shortly after the issue of its ASIC accounting exemption order. The winery sale by a financially distressed company being regulated by ASIC to the chairman of ASIC was apparently approved by the Treasurer as consistent with the maintenance of the high standards of ethical behaviour expected from public servants.