Agrokor audit results 'shocking', Croatia needs tougher laws - govt expert

Agrokor audit results 'shocking', Croatia needs tougher laws - govt expert Author: Agrokor. License: All rights reserved.

ZAGREB (Croatia), October 6 (SeeNews) - The head of Croatia's committee on financial reporting standards, Ivica Smiljan, said on Friday he is shocked by the huge corrections PricewaterhouseCoopers LLP (PwC) made when auditing the financial reports of ailing concern Agrokor for 2015 and 2016.

Smiljan, an auditor himself, called for toughening the legislation regulating standards for financial reporting and audits.  

"I've been in accounting for a long time. I started work in the profession in the former Yugoslavia. I am very surprised at the high level of corrections PwC had to make", Smiljan said during a daily political radio show on public brodcaster HRT.

"We have to think about this very carefully," he added.

The audit made public on Thursday revealed huge discrepancies between the 2015 financial results of nine key companies within Agorkor reported earlier and the audited figures. Inflated value of assets, understated claims towards group members, over-estimated inventory and undocumented costs were some of the reasons for the discrepancies. The audit showed that the aggregate capital of the nine companies stood at a negative 2.4 billion kuna at the end of 2016, or 13.4 billion kuna ($2.1 billion/1.8 billion euro) below the figure reported at the end of 2015.

Smiljan compared the Agrokor case to the downfall of U.S. energy company Enron that led to the demise of one of the leading auditing firms in the country, Arthur Andersen. Arthur Andersen collapsed due to its criminal handling of Enron audits in what is described as one of the world's biggest corporate scandals. 

"After that, the U.S. reacted promptly. A restrictive law was adopted that regulated the way financial statements and audits are put together, and clearly laid out criminal responsibility. Our legislation is tied to EU directives but nothing is preventing us from sharpening our laws," Smiljan said.

The total negative impact on equity resulting from the recalculation of results for 2015 and the losses of the nine companies recorded in 2016 equals 10.5 billion kuna in the retail sector, 1.7 billion kuna in the agricultural sector and 1.2 billion kuna in the food sector, the results of the audit showed.

The auditor of Agrokor's financial accounts for 2013, 2014 and 2015 was the Croatian unit of UK-based accountancy and business advisory network Baker Tilly. Earlier this year, Agrokor said it has named PricewaterhouseCoopers LLP as auditor of its 2016 financial statements after preliminary probes revealed that potential accounting errors might have been committed.

Agrokor has been in financial turmoil since January when Moody's downgraded its corporate family rating of Croatia's largest privately-held concern. Following Moody's decision, Agrokor pulled out of a syndicated loan deal it had struck with several international lenders, which sent the price of its bonds on international markets into a downward spiral. In April, the Croatian parliament adopted a law allowing the government to appoint temporary administrators to lead a restructuring process at the request of the company's creditors or the debtor itself.

(1 euro=7.50166 kuna)

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