Watchdog uncovers severe accounting flaws in four listed companies

Small caps are more prone to audit errors.

Four listed companies have been singled out for severe bookkeeping errors in their financial statements, highlighting decision making-lapses on the part of their directors.

The Accounting and Corporate Regulatory Authority revealed that these errors "significantly affected" the companies' reporting profits or operating cash flows.

In one instance, a company included unrealised forex differences as non-cash items, which distorted its the true status of its cash flows.

Another company encountered errors in using the fair value model for its investment properties, resulting in bloated fair value gains.

Still another firm prematurely recognized revenue and profits while a contract was still under construction, while another company consolidated a subsidiary before it had fully obtained control of the target firm. 

These examples do not comprise solely or all instances of severe non-compliance but highlight that some companies succumb to glaring accounting faults.

“There were four instances of severe non-compliance that significantly affected the reported profits or operating cash flows. 40 out of 54 instances of other non-compliance were also attributable to these companies. The higher proportion of noncompliance could be due in part to the increased complexity in accounting when these companies scale up and expand operations overseas. It could also be due to their audit committees not spending sufficient time on financial reporting,” ACRA said.