TCL, auditors at odds over 2011 financials

Professional services firm, Ernst & Young (E&Y), has qualified its audit opinion of TCL’s 2011 financial results as a result of a disagreement between the insolvent cement company and the auditors over the treatment of impairment losses pertaining to plant and machinery in Jamaica. The auditors say that had their opinion been accepted by TCL, the cement company’s net after-tax loss for 2011 would have gone from $375 million to $506.4 million. A report on Caribbean 360.com yesterday said the issue revolves around an attempt by TCL to use future sales of cement to Venezuela under the PetroCaribe agreement to reduce the impairment of its plant and machinery.

 

 

TCL’s general manager in Jamaica, Anthony Haynes, is reported by the wire service as saying the agreement would require the Jamaican government paying TCL for the shipment of cement to Venezuela under the PetroCaribe pact. The agreement to sell Jamaican cement to Venezuela could be signed by the end of 2012, according to Haynes. E&Y, in its qualified audit opinion, stated: “These impairment losses were determined based on management’s projections which assume that the Group will generate significant revenue from exports to a certain market under a proposed agreement currently under active negotiation for which the terms and conditions have not been agreed as at the date of this audit report. 

“We have not obtained sufficient appropriate audit evidence to support the inclusion of the cashflows from these exports.”

 

 

But in TCL’s consolidated audited financial report for 2011, TCL directors Rollin Bertrand and Andy Bhajan hit back at the auditors, stating: “The board of directors considers that there is a reasonable expectation that management’s assumptions will be realised and therefore approved management’s calculation of the impairment losses.” The audit also reveals that TCL’s current liabilities exceeded current assets by $1.58 billion at the end of 2011, mainly due to the reclassification of most borrowings to current liabilities.

TCL also concluded that the combination of its 2011 losses, its negative net worth of $1.58 billion and the fact that “all loan agreements were in legal default” represented a “material uncertainty that may impact the ability of the Group to continue as a going concern.”

 

 

The TCL directors said that there was a “reasonable expectation” that the company would “generate adequate cash flows and profitability which would allow the Group to continue in operational existence in the foreseeable future.”  The financial report also revealed that TCL expected the legal documentation and sign off of its debt restructuring agreement with its creditors to be concluded this month.