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New JAA Financial Statements raise more questions

The JAA’s attempt to correct the set of error-riddled Financial Statements it released last month for the year ended 30 June 2017, has raised even more serious questions regarding the embattled association’s accounts.

Having admitted its previously released accounts were wrong and contained five different trading results (losses), the board withdrew the financial statements from the JAA website and pointed the finger at its auditor for “typographical errors” – even though the statements did not contain an official auditor’s report or independent review report as required by law.

However, as concerning as those errors were, the latest set of documents has revealed further anomalies, especially with regard to the association’s potential FY17 trading losses. Moreover, it also revealed that more than half of all the JAA’s dwindling membership income was paid out to ‘Key Management Personnel’ – presumably its executive director Amanda Hunter - who quit in May.

Jeweller was able to glean this information by examining the latest set of JAA accounts, which were ‘approved’ via a single accounting practitioner, Harminder Grewal. This is despite the fact that for many years a well-recognised audit firm, now part of prominent chartered accounting firm Kelly Partners had prepared the JAA’s annual financial statements.

The reason for the change is not known; however, Grewal, a member of the Institute of Public Accountants who operates a small Sydney-based practice called Transition Accounting, provided the independent review report dated 31 October.

It is also unclear whether he was responsible for, or contributed to, the embarrassing “typographical errors” in the first statements, but given Grewal has now signed-off and ‘approved’ the second set of accounts, Jeweller contacted him to clarify a number of anomalies.

More questions raised

The Cash Flow Information chart on page 21 contains six line items comparing the previous period (FY16) to the June 2017 results. However, by applying the same formula across each line item it would appear that three figures are incorrect or, at least, do not use the same formula to arrive at the other figures.

The queries surround the following line items ‘(Increase)/decrease in’:
• trade and term receivables – reported (–$45,062) correct figure (–$45,653)
• trade payable and accruals – reported $13,084 correct figure $28,429
• other liabilities  – reported (–$6,398) correct figure (–$21,244)

Grewal asked for the information to be emailed to him last Friday, but at the time of publication he was still yet to respond.

When Jeweller contacted JAA president Selwyn Brandt about possible new problems, Brandt said he was confident that there were no further mistakes because “we got them [the accountants] to look through very carefully and to double check everything so I am confident it’s ok.”

Selwyn Brandt, JAA president
“We got the accountants to look through very carefully and to double check everything so I am confident it’s ok.”
Selwyn Brandt, JAA President

He indicated that the first round of errors – five different trading results (losses) – was embarrassing given the five board members, as well as the ‘auditor’, had approved the financial statements for distribution to members. However, when commenting on the current concerns Brandt added “obviously we rely on these professionals to prepare accounts that are accurate, but unfortunately they failed.”

If the three cash flow line items prove to be more errors they do not alter the FY17 trading loss (–$131,819), which represents an 850 per cent change when compared to the previous year’s result (–$13,878), nor the JAA’s negative equity position of (–$17,816) – a 116 per cent change from the previous year; however, it should also be noted that the board and Grewal had approved a set of accounts that has no provision for bad debts.

The JAA’s trade receivables (debtors) have more than doubled from $39,225 in FY16 to $84,788 this year, yet unusually, the accounts record a zero balance for impairment (ie provision for doubtful debts) of Trade Receivables. This is especially pertinent given the much larger receivables figure and the fact that the previous year recorded a $1,000 impairment figure.

Brandt could offer no explanation as to why this year was zero, other than to indicate that a large part of the $84,788 amount owed to the association involved a payment from Expertise Events to the JAA for the 2016 International Jewellery Fair, which normally would have been recorded as ‘commission income’ in the FY17 year.

It is well known that Expertise Events and the JAA have been in a breach of contract dispute since April last year. The dispute surrounds the JAA’s decision to launch a competing trade fair ahead of the 2016 Sydney trade fair, for which it was meant to promote.

Jeweller understands the disputed payment could be between $50,000 and $60,000 and, at the time of publication the matter was still in the hands of lawyers. However, if the JAA’s legal position were unsuccessful it would mean the latest statements undervalues the FY17 trading loss by as much as (–$60,000).

Australian Accounting Standards compliance 

This potential inaccuracy raises more serious questions regarding the board and the ‘auditor’s’ sign-off and approval of the FY17 Financial Statements than the previous errors, as both parties have declared they were prepared in accordance with Australian Accounting Standards (AAS). Under AAS rules for ‘Impairment and Uncollectibility of Financial Assets’ the board and auditor have an obligation to declare and record “whether there is any objective evidence that a financial asset or group of financial assets is impaired.”

The fact that the JAA has been in a legal dispute with Expertise Events for more than 12 months would arguably be “objective evidence that a financial asset is impaired.” Yet, the JAA has not recognised via “objective evidence” that the Expertise Events payment might be uncollectible by recording a zero bad debt.

The AAS rules are clear: “The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of the loss shall be recognised in profit or loss.”

Jeweller subsequently asked Grewal for clarification on this matter and whether his report conforms to Australian Accounting Standards. He was also asked if the JAA board advised him that a large part of the $84,788 in receivables was subject to legal action. At the time of publication he had not provided an explanation.

The matter has now been referred to the Institute of Public Accountants compliance division.

If all, or part, of the disputed amount should rightly be recorded as an impairment the JAA’s trading loss for FY17 would actually be closer to (–$180,000); a figure that would severely impact cash flow statements.

In addition, total income for FY17 fell by (–$182,550), a 42 per cent difference over the previous year. However, the JAA’s current independent review report states there was “no significant change in the company’s state of affairs.”

Brandt says that despite the number of extraordinary changes in the JAA’s financial position and large membership decline – including a negative equity position and an 81 per cent decline in its cash position – it was the board and Grewal’s opinion the results did not represent a “significant change in the company’s state of affairs.”

This declaration may well become subject to investigation by regulatory bodies along with the fact that on two occasions the JAA board has signed-off and approved its financial statements declaring that they “give true and fair view of the financial position as at 30 June 2017 and of the performance of the company”.

The FY17 results also show that JAA membership income has fallen to $285,000, however; what might be more interesting to members is the fact that the accounts show that ‘Key Management Personnel Compensation’ was $150,014 - presumably paid to former executive director Amanda Hunter - and which means 52 cents in every member dollar was expended on the executive director.

Hunter quit her position on 8 May; the same day the JAA cancelled its new Jewellery Tradeshow at Moore Park, Sydney, because of a lack of support.

Jeweller contacted Brandt late yesterday to ask if the second set of financial statements would be presented to the AGM, which is scheduled for tomorrow. At the time of publication he had not responded.

 

Update 10.30am, tuesday 14 November

The JAA’s new accountant Harminder (Harry) Grewal responded via email advising that JAA president Selwyn Brandt “has this morning touched base with me and I am reviewing the contents of your email in particular with regards to the recognition of a provision for trade receivables. I will review this in detail and will have outcome for you by close of business today.”

More reading
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It’s time for Brandt and JAA to move on
Amanda Hunter resigns; 2017 JAA tradeshow cancelled




















Sunday, 19 November, 2017 09:24pm
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