Market regulator looks into shock write-down
The Financial Markets Authority (FMA) is seeking information from Fonterra after receiving a complaint expressing concerns about the dairy co-operative’s expected record annual loss and asset write-downs.
In early August Fonterra said it expected to make a loss for the 2019 financial year of between $590 million and $675m due to asset writedowns of up to $860m.
An FMA spokesman said the authority had recently received a complaint about Fonterra’s financial reporting and its audited financial statements over the past few years.
The complaint came from Colin Armer, who said he and his wife owned 10 million shares.
He wrote to FMA chief executive Rob Everett complaining about the last four years of Fonterra’s accounts and said auditors had used inconsistent valuation methods for Fonterra assets Beingmate and China Farms.
‘‘Fonterra shareholders have been badly let down by independent auditors who have allowed either Fonterra senior managers or the board to manipulate or defer accounting for losses over several years,’’ Armer said.
Fonterra’s financial statements are independently audited by accountancy firm PwC. However, that could change to KPMG if a proposal is approved by shareholders in November.
Former PwC chief executive Bruce Hassall sits on Fonterra’s board, as does Brent Goldsack, who has been a partner at PwC for more than 12 years.
Armer said the Fonterra shareholders’ council needed to accept some responsibility for not ensuring the dairy co-operative had superb governance.
The FMA is the New Zealand government agency responsible for regulating financial market participants under the Financial Markets Conduct Act.
Fonterra was formed in 2001 and listed on the New Zealand and Australian stock exchanges in November 2012.
The FMA spokesman said that, as part of its monitoring, the authority contacted Fonterra to discuss its 2019 year-end statements just before an NZX announcement that it was expecting a loss and write-downs.
‘‘The FMA has engaged with Fonterra’s management and asked for information regarding concerns about Fonterra’s recent announcement and its pending financial statements for the last period,’’ the spokesman said.
‘‘We are now considering what further information may be required to assist our inquiries.’’
The FMA would also relay the complainant’s concerns about Fonterra’s financial statements over the past four years to Chartered Accountants Australia and New Zealand (CAANZ), the frontline regulator of licensed audit firms, he said.
‘‘We will engage with [CAANZ] over this matter and provide support where needed.’’
Fonterra chief financial officer Marc Rivers said the company met with the FMA in the week it announced the impairments and discussed its rationale. Fonterra would continue the conversation with the FMA throughout the reporting process, he said.
The write-downs it recently announced were all approximates and were yet to be audited, he said.
The decisions were made as a result of a review of the business Fonterra had been undertaking over the past year, as well as work done to prepare its financial statements for the 2019 year.
‘‘The numbers could change following the end-of-year audit process,’’ Rivers said.
Fonterra’s annual result will be released on September 12.
Armer said he supported the changes Fonterra had been making over the past year.
‘‘They’re effectively cleaning house. My focus is on what’s happened in the past.’’
A CAANZ spokesman said the group had received a referral from the FMA and was considering it.
PwC declined to comment.