Spectre of Steinhoff hovers as Tongaat sinks into the mire

Business

Spectre of Steinhoff hovers as Tongaat sinks into the mire

Shareholders continue to react to last week’s news that certain past accounting practices were being reviewed

Ann Crotty


Tongaat Hulett’s share price fell to R16.54 in intraday trade on Monday, its lowest level since the early 1990s, as shareholders continued to react to last week’s announcement by the new CEO that certain past accounting practices were being reviewed. PwC has been appointed to assist with the review.
Those of a nervous disposition may regard this as a “mini-me” version of the Steinhoff debacle, which saw PwC investigating financial accounts that were drawn up by Deloitte. As it happens, Deloitte is also Tongaat’s external auditor, and has been for 80 years.
Of course there has been absolutely no suggestion, so far, that anything Deloitte has signed off on will be part of the accounting practices being reviewed. But given the long relationship, it seems possible.
While much of the focus is on the billions of rand of land sales that propped up the income statement in recent years, it is likely that the review will also include a close look at the group’s biological assets, such as cane roots. The value of these assets has grown dramatically in recent years at a time when the sugar industry has been in decline.
On the matter of the land sales, which helped considerably to support Tongaat’s earnings and share price over the past years, the review should provide a fascinating glimpse into management’s thinking behind the accounting treatment.
The group’s latest integrated report describes the accounting policy in respect of land sales, stating that “large land sales are recognised when the relevant agreements are unconditional and binding on the purchaser and the purchaser has paid a meaningful deposit or has made arrangements to secure payment of the purchase price.”
Given this accounting policy, how is it possible the company is now referring to the termination of land sales “where the debtors have not performed”? How is it possible these land sales actually went through the income statement?

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