Legal woes mount for three firms downgrading
The Securities Commission will this week ask the state prosecutor's office to investigate the financial reporting of construction company Espebepe, engineering company Rafako and automobile trader Zasada, Commission chairman Jacek Socha said. Huge discrepancies between the companies' preliminary and final results have raised questions about their internal accounting procedures.
The companies may not have been keeping their books in accordance with the accounting law either by mistake or intentionally, Socha said. If the prosecutor's office decides to bring cases against the companies, it would add to their legal woes.
The Warsaw Stock Exchange (WSE) will most likely take Espebepe and Rafako to its internal disciplinary court this month, said Robert Kolowski, director of the WSE's legal department.
The exchange has not yet decided whether Zasada will also face action, he added. The WSE's disciplinary mechanism is a civil court. No similar cases have come to the court. Espebepe and Rafako both face fines of zl. 10,100 - zl. 100,000 ($3,800 - $38,000).
All three companies changed their preliminary results after audits by Big Six accounting firms using new Polish accounting laws. These new rules require companies to make provisions for deferred interest payments, depreciation costs and bad debts.
Espebepe showed net losses of zl. 17 million ($6.4 million), nearly ten times more than it had previously announced. The company's final results were audited by Deloitte & Touche and took into account provisioning for bad debts. The preliminary figures did not do so.
Rafako initially recorded 1995 net profits of nearly zl. 17 million ($6.4), but stunned the market three week ago when it did a turnabout and announced instead that net losses could add up zl. 56 million ($21 million). The change occurred after an audit by Arthur Andersen, which took into account possible losses on two long-term contracts.
Zasada reported provisional net profits of zl. 12.5 million ($4.7 million) and then downgraded the results to zl. 8 million ($3 million). The company's final results were also audited by Arthur Andersen.
While alarmed by the downgrades, the WSE was also upset that the reversals came as such a shock to investors.
But the downgrades could be a temporary setback for companies and the exchange. Investors are asking why, but "it's a one-off," said Martin Gollner, Eastern European analyst at Nomura Research Institute.
"The serious aspect is the reliability of Polish accounting standards," said Stephen Pettyfer, analyst at Merrill Lynch. He said changes affecting Espebepe, Rafako and Zasada are "not hugely serious" because only one blue-chip, Rafako, is affected.
The companies may not have been keeping their books in accordance with the accounting law either by mistake or intentionally, Socha said. If the prosecutor's office decides to bring cases against the companies, it would add to their legal woes.
The Warsaw Stock Exchange (WSE) will most likely take Espebepe and Rafako to its internal disciplinary court this month, said Robert Kolowski, director of the WSE's legal department.
The exchange has not yet decided whether Zasada will also face action, he added. The WSE's disciplinary mechanism is a civil court. No similar cases have come to the court. Espebepe and Rafako both face fines of zl. 10,100 - zl. 100,000 ($3,800 - $38,000).
All three companies changed their preliminary results after audits by Big Six accounting firms using new Polish accounting laws. These new rules require companies to make provisions for deferred interest payments, depreciation costs and bad debts.
Espebepe showed net losses of zl. 17 million ($6.4 million), nearly ten times more than it had previously announced. The company's final results were audited by Deloitte & Touche and took into account provisioning for bad debts. The preliminary figures did not do so.
Rafako initially recorded 1995 net profits of nearly zl. 17 million ($6.4), but stunned the market three week ago when it did a turnabout and announced instead that net losses could add up zl. 56 million ($21 million). The change occurred after an audit by Arthur Andersen, which took into account possible losses on two long-term contracts.
Zasada reported provisional net profits of zl. 12.5 million ($4.7 million) and then downgraded the results to zl. 8 million ($3 million). The company's final results were also audited by Arthur Andersen.
While alarmed by the downgrades, the WSE was also upset that the reversals came as such a shock to investors.
But the downgrades could be a temporary setback for companies and the exchange. Investors are asking why, but "it's a one-off," said Martin Gollner, Eastern European analyst at Nomura Research Institute.
"The serious aspect is the reliability of Polish accounting standards," said Stephen Pettyfer, analyst at Merrill Lynch. He said changes affecting Espebepe, Rafako and Zasada are "not hugely serious" because only one blue-chip, Rafako, is affected.
