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JSE confirms Trustco’s ‘errors’

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From The Namibian: Trustco Group Holdings Limited has been told to correct its financial statements and remove specific ‘errors’ that pushed up profits by a combined N$2,1 billion last year.

These alleged errors were called out by analysts and the media last year, but the company then had said its financials were in order and auditors approved them.

The instruction to correct the financials was served to the company by the Johannesburg Stock Exchange (JSE), where it has a primary listing, on Wednesday after a review.

It is normal for the JSE to conduct reviews on companies listed with them and the peek into Trustco’s books started last December.

During the review, the JSE said three matters were identified as not adding up, and these were referred by the JSE to its financial reporting investigations panel.

The panel which comprises accounting experts, provide advice on International Financial Reporting Standards (IFRS) matters.

Referred to the panel was the classification of gains derived from loans that were written off on two occasions with a gain value of N$1,5 billion.

The second was the reclassification of unsold erven held by Trustco in a property development from inventory to investment property. This reclassification had triggered a N$693 million gain.

The third item regarded the point when the company recognises revenue in the sale of undeveloped land.

According to the JSE’s announcement, the panel of experts disagreed with the basis of accounting applied by Trustco on all three matters referred to them.

In its defence, Trustco, when called out on the application of accounting standards as above, reported it sought advice from advisers and its auditors did not modify their audit opinion.

It is unclear why the auditors gave Trustco the green light – especially with new revelations from the JSE that their application of accounting standards was inaccurate.

The JSE has now once again cautioned investors to be careful.

“The JSE reminds stakeholders of other high-profile cases in our market where IFRS advisers and auditors believed that an issuer’s results were compliant with IFRS, but this was subsequently found not to be the case,” read their statement.

Trustco’s financials head is former managing director of Alexander Forbes Namibia, Marco Erasmus, who is a chartered accountant by profession, and BDO Namibia were the auditor of the Namibian entities some errors are attributed to.

It is very odd that such errors, were let go undetected.

Earlier this year, The Namibian reported that Trustco’s lead auditor, Moore Johannesburg, resigned over audit fee issues. BDO Namibia are still auditors for local operations.

Trustco was seeking to cut fees by 30%. This led to two directors jumping ship at board level: Kristin van Niekerk and Lana Weldon.

They cited cutting audit fees by that much would put pressure on the company’s auditors and would risk them sacrificing their professional competence and due care.

Weldon is also a chartered accountant.

The N$1,5 billion gain from loan write-offs as quoted above includes a N$1 billion loan from company boss Quinton van Rooyen, which The Namibian reported on last year as problematic, according to analysts.

It was also reported that the reclassification of properties aided in pushing up profits by N$693 million.

Without the loan write-off of N$1 billion above, gains and ultimate profit would have been down for the 2020 interims.

And without the reclassification, Trustco would have made a loss before tax of about N$88 million, calculated by excluding the N$693 million gain from 2019’s financial statements.

It is the above gains from loan write-offs and reclassification that Trustco is now being told to correct.

This should happen by:

1. Reversing the N$545,6 million gain previously recognised in profit and loss – from the Huso deal;

2. Reversing the reclassification of the Elisenheim properties and consequently reversing the N$693 million gain (which was presented as revenue of N$984 million); and

3. Reversing the N$1 billion gain previously recognised in profit and loss from Van Rooyen’s write-off.

Trustco is said to have taken legal action to object to the findings of the JSE and recently indicated that no further adjustments to its results on the above would be made until the objection process is completed.

Last year, Trustco became the first Namibian company to list in the United States of America. The financials it presented there are now being questioned, and it is not clear how this will play out.

The JSE further issued a word of caution, that “the accuracy and reliability of financial information published by companies are of critical importance in ensuring a fair, efficient and transparent market”.

Trustco is Van Rooyen’s majority-owned company and operates in three segments: insurance and investments, resources, and banking and finance, and owns companies such as Trustco Bank, Meya Mining in Sierra Leone, the Northern Namibia Development Company, and Morse Investments, which was accorded export processing zone status.

When rules are violated, a company can get de-listed.

Truscto’s shares on Wednesday were trading at N$3 – way below last year’s trading prices.