Probe into Nova auditor sought
RELATES TO VALUATION OF THE VILLA This valuation has profound impact on Nova’s already precarious financial position.
The Independent Regulatory Board for Auditors (Irba) has initiated an investigation into whether international audit firm BDO has properly verified the independent valuation of Pretoria’s The Villa shopping centre.
It’s owned by and represents the single biggest asset of the Nova Property Group, the rescued vehicle that emerged after the Sharemax investment scheme collapsed. The audit watchdog confirmed it’s received a complaint relating to BDO’s audit of Nova, but declined to disclose the nature of the complaint.
Moneyweb can confirm that Charl Kocks, Ratings Afrika CEO and a chartered accountant, submitted the complaint, which was related to The Villa’s valuation.
In the complaint, Kocks states The Villa’s valuation is “overwhelmingly material” to the group’s financial position, but he feels BDO didn’t go far enough to verify it.
The disclosed valuation in the unqualified 2016 financial statements is R1.612 billion. This is significantly higher than the independent valuation of Amanda Bruyns of Amanda de Wet Consultants and Investments of R770 million. This valuation is for 100% of The Villa and since Nova accounts for only 80% of the centre’s value, the R1.612 billion should be compared with an official valuation of R616 million – a difference of more than R1 billion.
BDO seemingly didn’t verify the accuracy of this valuation. Kocks states in the complaint that Bruyns confirmed to him that BDO didn’t contact her during the audit process. This valuation has a profound impact on Nova’s already-precarious financial position, especially the income statement, where an increase in property values is accounted for as income.
Kocks highlights this impact in his complaint: “The value disclosed for The Villa is thus material to Nova, and a difference of some R1 billion in its value would be overwhelmingly material to the financial position of Nova, as well as in relation to its comprehensive income, were the difference to be charged in the 2016 year as a fair value adjustment.”
The comprehensive income and accumulated profit disclosed in the 2016 statements amounted to R135.7 million and R1.22 billion respectively.
An overvaluation of R1 billion would therefore have a significant impact on the statements.
In response to Moneyweb questions, BDO issued a statement confirming it received a complaint of improper conduct from Irba in relation to the Nova audit. BDO confirmed to Moneyweb that its own internal investigation into Nova’s financial affairs is ongoing. This investigation started in November 2016 after Moneyweb submitted questions to BDO. Several external consultants and experts also participated.
These questions were related to apparent discrepancies contained in Nova’s financial statements, and the fair and reasonable statement BDO signed in relation to the Section 311 Scheme of Arrangement that brought the Nova group into existence.