Controversial JSE-listed Net 1 UEPS Technologies, a shareholder in South Africa’s mobile phone firm Cell C, said on Friday that it will restate its financial earnings for the year ended June 2018 due to an accounting error.
The impact of the restatement on the company’s consolidated statement of comprehensive income for the year ended June 30, 2018, is presented HERE.
The company said is in the process of preparing restated financial statements for the year ended June 2018, which the company anticipates filing with the SEC (United States Securities and Exchange Commission) on Form 10-K/A for the year ended June 30, 2018, as soon as practicable.
Net1 added that it does not intend to file amendments to any of its previously filed Quarterly Reports on Form 10-Q.
But it’s not so much that Net1 – a controversial company – is restating that’s of real interest here – it’s what is being restated and why it took so long and why.
On August 2, 2017, Net1 through its subsidiary, Net1 Applied Technologies South Africa, bought 75 million shares of Cell C, a private mobile phone operator, for R 2 billion ($151.0 million) in cash.
At the date of purchase, Net1 elected the fair value option for its investment in Cell C in accordance with Accounting Standards Codification (ASC) 825 Financial Instruments.
“The Company incorrectly used the guidance in ASC 320 Investments-Debt and Equity Securities regarding available-for-sale equity instruments with readily determinable fair values,” the company informed investors on Friday.
“Cell C’s equity securities are not listed on an exchange and therefore there are no sales prices or bid-and-asked quotations that are currently available on a securities exchange, and therefore it did not meet the scope requirements of an equity security under ASC 320. As a result, the investment was incorrectly classified as an available-for-sale equity instrument with the changes in fair value being incorrectly recorded as part of other comprehensive income rather than through earnings.”
Net1 said its management evaluated the impact of the misstatement on its reported results for the year ended June and recommended to its Audit Committee that it should restate its financial statements.
“The Audit Committee has assessed the guidance contained in ASC 825 and determined that a restatement of the reported results for the year ended June 30, 2018, is required and the disclosures contained in ASC 250 Accounting Changes and Error Corrections should be contained in its amended Form 10-K, and that the amended Form 10-K should be filed as soon as is practically possible.”
The Company is currently assessing the impact of this restatement on its internal control over financial reporting.
In actual fact, a global firm such as Net1 has elected to place a new acquisition as an available-for-sale equity instrument for such a long period without its accounting officers realizing the error. It’s really an eye-opener to investors that they need to thoroughly scrutinize the financial figures of listed entities.