Tag: False accounts

AppScatter Group – Another Case of Very Dubious Accounts

Last night I gave a presentation on my new book and explained why accounts are not to be trusted. I said that there were several new examples revealed every month of dubious accounts and today we have another one. In this case the company is AppScatter Group (APPS). This is an AIM listed company whose shares are currently suspended because of a proposed acquisition. I do not hold the shares but have been monitoring it as it operates in a sector that is of interest to me.

Today they published their interim results for the period to the end of June. To quote from it: “appScatter is a scalable B2B SaaS platform that allows paying users to distribute their apps to, and manage their apps on, multiple app stores. Additionally, the centralised platform enables app developers and publishers to manage and track performance of their own and competing apps across all of the app stores on the platform”.

Launch of the platform is behind schedule putting pressure on working capital so they have issued equity to raise £1.6 million and entered into a loan facility for £5 million on which they are paying 11% interest to cover that and the acquisition costs.

Revenue was up on the 2018 figure at £710k but the half year loss was £5.1 million. But this is the really surprising statement: “The revenue for the first six months of 2018 included accrued revenue of £576,573. This related to work carried out for corporate customers where invoicing was anticipated to occur after the reporting date.  Only £38,000 of this work had been invoiced as at 31 December 2018 and given timing uncertainties under when the balance will be invoiced the accrued revenue was not recognised for the twelve months to 31 December 2019. On a consistent basis the comparable revenue figure for the first six months of 2018 would be £365,596”.

So in simple words, they recognised future revenue when there was no certainty of invoicing or when it could be billed. This is just totally imprudent accounting but the directors signed off on this and their AIM Nomad would have done so also.

This kind of sharp practice hardly inspires confidence in the future of the business. But it’s symptomatic of the lax accounting standards that have crept into public companies of late. The 2018 full year results show the CFO resigned in June 2018 and adoption of IFRS15 reduced revenue by £1 million over the prior year. The accounts were also qualified by their auditors over the valuation of their investment in Priori Data.

Unfortunately although I do not hold the company directly it is held by two of the Venture Capital Trusts I hold. I hope they make representations to the management on this issue.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Acquittals Over Tesco Fraud

Yesterday (6/12/2018) was another sad day for those who would like to stop false accounts being published by public companies. Two former executives of Tesco who had been charged with their involvement in the inflating of Tesco’s profits by including supplier credits were discharged by the court on the basis that they had no case to answer. The judge, Sir John Royce, said the case was so weak that it should not be put to a jury.

It appears that the problem was proving that the defendants, John Scouler and Christopher Bush, knew about the false accounting or were the cause of it. This is despite the fact that Tesco, the company, entered into a Deferred Prosecution Agreement (DPA) with the SFO over the case, and the company agreed with the FCA to compensate affected shareholders who relied on the false accounts.

A DPA does not include any admission of guilt, so it seems we now have the situation where nobody is to be held personally liable for these events.

Was this a trivial technical offence committed by a low-level employee? Not exactly. Tesco plc made an exceptional charge of £235m in respect of the DPA of £129m, the expected costs of an FCA compensation scheme of £85m, and related costs.  The profit figure of Tesco was reduced by £250 million in one quarter alone.

Auditors PwC also escaped any censure over their audits of the accounts of Tesco after an investigation by the Financial Report Council (FRC).

In summary we now have the situation where a major fraud on investors took place by the publication of false accounts but nobody is held accountable. Not until UK law is tightened considerably will such events no longer happen. Directors should be held strictly liable for the publication of false accounts on their watch, and auditors likewise. It is simply not good enough when everyone can evade responsibility by saying “nobody told me”.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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