The JSE on July 29 imposed a R7.5-million fine on information technology services multinational EOH for the material errors and inaccuracies contained in its 2017 and 2018 financial statements, but has suspended R2.5-million of the fine for a period of five years.
EOH, in a July 29 statement, said it accepted the JSE's findings that the financial statements for those years had not complied with International Financial Reporting Standards (IFRS) and were incorrectly prepared. It acknowledged that, as a result, incorrect, false and misleading information was disseminated to the market through those statements.
"The current board of directors of EOH has spent a significant amount of time rebuilding credibility through establishing a robust governance framework, creating more transparency within the business and ensuring the accuracy and reliability of the financial information disclosed to the market, while continuing to work through the remaining legacy issues that it inherited," the company emphasised.
Although EOH was disappointed to have received a public censure and fine from the JSE, the EOH board noted that this applied to the financial periods approved by the previous management, and that the findings of the JSE and the Financial Reporting Investigations Panel (FRIP) supported the position of the current management team and vindicated the actions taken in restating the 2018 financial results.
"The EOH board is pleased that the JSE has agreed to suspend a portion of the fine and allocate the balance to potential future costs.
"EOH has worked tirelessly to address the inherited legacy issues and ensure that EOH is once again a respected name in the South African information and communication technology sector."
The company said it remained committed to pursuing legal action against the perpetrators identified during an ENSafrica forensic investigation and to try to recover losses caused by the main perpetrators of wrongdoing.
During 2019, the EOH board undertook a detailed review of the financial reporting processes and the resulting financial statements, including financial statements previously published, in order to ensure the integrity of the financial information provided to the market. The review uncovered discrepancies that spanned different accounting topics, including revenue recognition, initial asset capitalisation, subsequent recovery of assets initially recognised, the timing of the recognition of liabilities and the recognition of impairment losses.
The review focused on the 2017 and 2018 financial results, which culminated in various restatements being included in the company’s annual financial statements for the year ended July 31, 2019, and, consequentially in the financial results for the six months ended January 31, 2020, to correct the prior period errors.
The JSE initiated an investigation following the restatements included in the 2019 financial results and the January 31, 2020, interim financial results, resulting in the public censure and fine being imposed.
The 2019 financial results included a qualified audit opinion from Mazars, EOH’s previous auditors, which disagreed with EOH’s current management on the treatment of the various restatements in respect of the appropriate period within which to record the restatements. However, the qualification did not extend to the statement of financial position for the 2019 financial results.
The JSE investigated the matter and referred it to the FRIP.
The FRIP determined that compelling arguments were put forward by EOH in respect of the restatement of the prior period errors, and the IFRS requirements in respect of the various prior period errors appeared to be correctly interpreted by EOH.
Further, the FRIP determined there was no clear violation of IFRS by EOH in respect of the restatements contained in the 2019 financial results and that further investigation would be required on the auditor’s conclusion, which investigation is outside the scope of the FRIP.
The JSE has referred the matter to the Independent Regulatory Board of Auditors (IRBA) for its further consideration as it relates to the auditor’s conclusion and EOH awaits the outcome of the IRBA process.
The JSE has undertaken to apply the fine of R7.5-million to settle any future costs incurred by the JSE, which may arise through the enforcement of the listings requirements and may include the investigation into the conduct of the previous management that presided over EOH during the periods in question.