On 18 October 2017, the JAA published its financial accounts in time for its annual general meeting; however, the report was error-laden, with five different trading results (losses) recorded throughout the report.
The Financial Statements also raised many other questions. Five days later, the JAA issued an email blaming the JAA auditors, stating they “have acknowledged some typographical errors and they are in the process of rectifying these mistakes and formerly explaining what has occurred.”
The report’s Contents page listed the Independent Auditor’s Review Report as being at page 27; however, it was not included to members even though the JAA recorded an auditing fee of $4,180 at page 15. At the time there was confusion over the errors as well as which accounting firm had acted for the JAA and allegedly made the errors.
When contacted for clarification, a representative of the JAA’s long-term auditing firm, Barry Mendel Frank & Co (now Kelly & Partners) confirmed that although the firm had completed an Independent Review, not a formal Audit, for the previous year (FY16), it had not been involved in the preparation of any 30 June 2017 Financial Statements for JAA members.
It was later established that the JAA had appointed a new accountant Mr Harminder (Harry) Grewal, a member of the IPA. Therefore, it appeared that the “typographical errors” were his responsibility. Grewal operates a small Sydney-based practice called Transition Accounting.
Additional revelations
The Financial Statements were signed-off by the JAA board, which raised further questions as to why the glaring errors were not identified by at least one of the six directors.
The Australian Securities and Investments Commission (ASIC) guidelines clearly outline director obligations on financial reporting: “Each director has a duty of skill, competence and diligence in the understanding of the financial report that is to be disclosed to the public. You must read, understand and focus on the contents of the financial report”.
In accordance with Australian Charities and Not-for-profits Commission (ACNC) requirements, the JAA’s financial reports must be either ‘audited’ or undergo a ‘independent review report’ by a suitably qualified, independent accounting professional.
A second set of Financial Statements was issued by the JAA on 31 October rectifying the obvious errors; however, the report did not “formerly explain” how the errors had occurred.
That second report also contained an independent review report signed by Grewal. However, many of the questions previously raised surrounding Australian Accounting Standards (AAS) were not addressed. For example, the FY17 trading loss (–$131,819) represented an 850 per cent change when compared to the previous year’s result (–$13,878) and the accounts provided a zero balance for impairment (bad debt provision).
This seemed unusual given that the JAA’s trade receivables (debtors) had doubled in the past 12 months from $39,225 in FY16 to $84,788 and the JAA had recorded a bad debt figure the previous year.
Brandt confirmed that of $84,788 recorded in the JAA debtors, $50,000-$60,000 alone pertained to just one amount: a legal dispute with Expertise Events, which had already been in progress for 6-12 months.
It’s believed that the IPA’s investigation is seeking to clarify why that amount was not identified in the 2017 Financial Statements and which, if it had, would have placed the JAA in a negative equity position of between $60,000 and $80,000.
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 [uncollectible].”
Other questions were raised which lead the IPA to seek clarification from its member. A formal investigation began late last year.
A spokesperson for the IPA Compliance division has told Jeweller that the investigation is still in progress and compliance investigations are typically “completed within six to nine months, and around twelve months for matters referred to the IPA Disciplinary Tribunal.”
JAA president Selwyn Brandt was contacted for comment but at the time of publication he had not responded.
View the JAA 2017 Financial Statements here.
More reading:
Unanswered questions at JAA AGM
New JAA Financial Statement raise more questions
Jewellers association financial statements raise questions