Hancock audit might need auditing

Subject: Gina

Good luck to you and your fellow ALP propagandists finding new jobs!

Good riddance to all the scum at Fairfax who have tried so hard to destroy this once great country.

Chris Law

 

Fan mail is one of the fringe benefits of this job. We showcase this offering from Chris because it is succinct and raw but not rambling on with expletives and poor grammar as is often the case.

Chris’s supplications came when Gina Rinehart first surfaced on the share register of Fairfax Media in February. This is a Fairfax publication.

By last week, the world’s richest woman had amassed a stake of almost 19 per cent, just below the 20 per cent threshold for compulsory takeover.

On Monday, Fairfax announced a restructure and 1900 job cuts. On Tuesday, the journalist Paul Barry told ABC Radio that Adele Ferguson and your lowly and wretched essayist would be the first to be axed when Rinehart took control of Fairfax.

Chris would be elated. And naturally, we were delighted ourselves when a contact said on Thursday, “Hey mate, I’ve got a great Gina Rinehart story for you!”

It is a bit of a boring accounting yarn actually. And it’s really more about PricewaterhouseCoopers and regulation than Rinehart. So here we go.

Rinehart’s Hancock Prospecting used to file its annual financial reports on time, and in accordance with the law, for many years.

Its financial report for June 30, 2006, however, was not lodged until January 2008. And the 2007, 2008 and 2009 accounts were all filed more than one year late while the 2010 report never turned up at all.

Hancock is by no means alone. Many large companies fail to comply.

Anyway, in February last year, ASIC sent Hancock a letter about the non-lodgement of its accounts. One can only speculate what might have prompted this burst of activity.

Nearly seven months later, in October, Hancock requested the regulators sally forth with one of their alarmingly commonplace relief orders and excuse the company for not lodging.

Then in March this year, ASIC finally decided that it could not deliver its customary forgiveness for breaches of the Corporations Act and Hancock resorted to a challenge in the Administrative Appeals Tribunal.

Last week, Jeffrey Knapp, an accounting academic at the University of NSW and an expert on disclosure, attempted to join the action but was repelled, successfully, by both ASIC and Hancock.

Now Knapp says he might have unearthed an accounting irregularity in the Hancock financials that are in the public domain. Hancock’s financials for 2008 and 2009 claim the Hope Downs joint venture does not meet the definition of a joint venture in accordance with the accounting standard AASB 131.

However, Knapp believes Hancock and its auditors, PwC, have it wrong. Hancock’s 2008 and 2009 financials do not comply with accounting standards, Knapp says.

”I am unable to conceive on what grounds the Hope Downs joint venture does not meet the definition of a joint venture. How can it not be a “contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control”?

How can it not, indeed?

Knapp points to Rio Tinto’s financials for 2008. According to Rio Tinto, Hancock’s co-venturer, and its auditors – yes, the very same PwC – the Hope Downs joint venture does meet the definition of a joint venture in the accounting standard.

“It is the same definition and the same joint venture. PricewaterhouseCoopers’ split personality on the issue is a surprise,” Knapp says. “An audit firm should apply consistent interpretations of accounting standards otherwise we might as well not have the accounting standards or the audit.”

As Knapp puts it, Hancock’s interpretation, supported by one half of PwC, has the effect that Hancock may have avoided certain disclosures for interests in joint ventures required by AASB 131.