GBO: i'd appreciate thoughts on todays change of auditor

6th Mar '14 by DJLJ23

21 comments 19836 reads

Globo (LON:GBO) has fallen significantly today on the move of auditor from BDO LLP to Grant Thornton.
GBO company says they requested their (BDO) resignation because they could not agree cost/scope. BDO, in resignation letter, indicates they could not agree about scope, in particular how they obtained the evidence to sign off audit.

I'd have thought that both companies would need simular access and evidence, so to me the letter fron BDO seems petty. but would appreciate thoughts from others on the situation.

many thanks David

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DJLJ23

Premium Member

Southerner living in the North, trained as metallurgist, background in IT, business cases and project management.

21 comments

rhomboid1

6th Mar '14

These sort of rows should never be a) public or b) pre audit sign off, to me this is a very large red flag and if I held I'd be selling

Paul Scott

6th Mar '14

I think this is yet another red flag. Globo's statement seems to suggest that the unexpected change of auditor is mainly about cost. Whereas the resigning auditor clearly says they were not able to agree scope. In my experience there isn't any justification for disagreeing with the auditor on scope - you just agree to whatever testing they deem necessary to sign off the accounts.

So it sounds to me like Globo have something to hide. I've long suspected that they are probably cooking the books here - because none of the profit ever turns into cash, and various Debtors are piling up on the Balance Sheet - the classic sign of artificially inflated profit. Moreover the decision to de-consolidate a subsidiary and change it into an associate, was in my view highly suspicious, and probably a blatant attempt to get more debits off the group Balance Sheet. The nature of its sale was also ridiculous - it was actually given away, together with a load of cash, in return for supposed deferred payment terms. So the book value of the associate is essentially another fictitious number.

Obviously the bulls will try to make out that everything is fine, and nothing out of the ordinary is happening, because that's what bulls always do. I think the next set of accounts will be very interesting, as they've run out of places to put the debits on the Balance Sheet.

Just in my opinion. Do your own research, as usual.

Regards, Paul. (disclosure: short position in Globo)

DJLJ23

6th Mar '14

Many thanks Paul for a clear analysis of GBO potential problems, not being an accountant i had assumed that tier 1 auditors would require the same access for signing off the accountants and therefore presumably anything that BDO might have revealed, will be revealed by Grant Thornton or can auditors use a get out jail card, that means that they don't have to apply the same standards?

Bonitabeach

7th Mar '14

Disclosure: Long GLOBO

It is not nice to read Paul Scott accusing the GLOBO directors of “cooking the books” a euphemism for accounting fraud. Paul has expressed his plausible reasons for his beliefs and the exaltations of Costis are wearing a bit thin.

GLOBO do themselves no favours: changing auditors two months after the year end is bad enough but the way it has been handled is a PR disaster. The “cost” explanation looks a very small fig-leaf.

I am not a fan of auditors or accountants generally: attached to every large bankruptcy is usually a tale of incompetent or complacent accounting and auditing.

Taking a quick look at the BDO website http://www.bdohellas.gr/content/about does not give me reassurance. Of the claimed 100 professionals only 17 are Certified Public Accountants and the data is as up to date as March 2012!

The Grant Thornton website http://www.grant-thornton.gr/0fls/c1.asp?subid=100&catid=99&l=2 is no better. A quick review of the 32 partners listed showed only about half to be actually described as qualified accountants. I was particularly drawn to the partner named as Immorality Arampatzi – I then realised I had misread the very attractive lady’s name – it’s Immortality – Freudian slip.
Their last press release is dated 2011 and the site has no organic English translation.

Where does all this leave the poor bloody infantry (private investors)? In the dark as usual, uncertain of our leaders and expecting casualties.

Bonitabeach

7th Mar '14

Disclosure: Even longer GLOBO.

BDO or Grant Thornton as auditor? It all depends on whether you like your crisps Salt & Vinegar or Cheese & Onion and it has about as much relevance to the value of this business in my opnion.

I note from the 20%+ drop in the GLOBO share price that the market does not share my opinion - nothing unusual there then.

fek47

7th Mar '14

I'm so tempted to take a punt on this, but know I will kick myself if it end up going bust!

stocktrawler

8th Mar '14

Paul - none of the profits turn into cash?

Year end trading update, Jan 28
-- 2013 will be the second consecutive year of positive free cash flow, before the impact of acquisitions

Disclosure - recently bought into Globo on latest drop

Also holder of QPP since 6p, a company that is now too big to comment on as it no longer qualifies as a small company. Waiting for main market listing before exit. My advice for what its worth is educate yourself, do your own research, trust your own judgement, have the courage of your own convictions and realise that the 'experts' can get it wrong particularly when biased with a short position.

DJLJ23

8th Mar '14

Hi Bonitabeach
Tried using your link to the GT site it failed server error, so linked to GT site in greece directly and was unable to id the lady from the list and the site has a translation to english and it appeared to be more uptodate then you suggested.
regards David

marben100

8th Mar '14

IMO it is too early to claim that Paul has "got it wrong" on Globo or QPP. Neither Paul nor I buy (or sell)shares on the basis of short-term price moves. Doing so, IMO, is speculation (i.e. gambling) as opposed to investment, the latter based on the long-term underlying value of a business. It remains to be seen whether Globo or QPP are capable of sustaining long term profits growth and paying rising dividends to shareholders. Those are the hallmarks of a valuable business, worthy of investment.

As Paul stated, he is short because he is convinced that these businesses are built on sand, not expressing negative views here because he is short. Similarly, Paul and I will invest because we are convinced of the value of a business and don't just post positive views because we are long.

The fact that a lot of people have bought into the story, driving the SP up, doesn't mean that Paul is wrong.

One thing I can personally vouch for is Paul's honesty & integrity.

Mark

DISCLOSURE: I am neither long nor short either company

stocktrawler

8th Mar '14

Is Paul short QPP then? Ouch!! I sincerely hope not.

Having bought the shares back in July 2012 for 5.65p before all the hype and controversy and based solely on independent research I would consider this more an investment than speculation on short term price move.

With all due respect, I'm sure Paul is a very honest, intelligent and knowledgeable chap but that does not make him infallible or immune to bias like the rest of us.

It would be excellent for Paul to cast his forensic eye over the next QPP earnings release due out this month and give a proper appraisal of the business as it stands today. This seems fair to those of us that had to endure the bear raid by EK but managed to hold on for a 600% gain so far. Does he still honestly believe it is built on sand with all the institutions loading up and cash flow catching up with EPS?

shipoffrogs

8th Mar '14

Stocktrawler

you don't have to wait for the next earnings release to see whether cash flow is catching up with EPS. They've already announced in January that the cash on the balance sheet was c£200m.

But just before the year end they raised £200m from shareholders, so that would suggest cash flow is still some way behind earnings.

stocktrawler

9th Mar '14

The latest trading statement on 18/2 announces 450+ million of new business, either contracted or in late stage negotiation since the fundraise, coupled with an improving cash profile of the business so let's see what they have to say late March about this matter.

swooped

10th Mar '14

************** IMPORTANT PLEASE READ RESPONSE FROM GLOBO **************

On the 7th March Masurenguy posted the following 7 Mar'14 - 17:05 - 14260 of 14465

I have been concerned about several of the comments, as such I forwarded the post to Globo and asked if they would comment, I have received the following reply which seems quite reasonable and I hope places a line under the speculation.

The post is as received by me from Dimitris Gryparis, CFO Globo plc. I have made no edits save as to add the words Question and Answer at the beginning of each to help clarity of reading.

************************************

tsmith2 - 14252: so Grant Thornton doing the group accounts all in, is bad?

Not at all - very reputable top 5 auditor. However you have to ask:

QUESTION 1. - Why didn't they appoint GT in the first place, as they were already auditing the Greek sub, rather than appointing BDO last year. It is also extremely unusual for a company not to agree the scope and price of the audit at the time a new auditor is appointed.

ANSWER 1. - At the end of 2012, we have started considering, following the advice of our Nomad and major institutional shareholders, the appoitment of a more senior audit firm given that Globo's market cap increased and its focus in expanding internationaly, and mainly in US, was becoming more of a need. For this reason, a fully integrated approach in the Group's audit from a more senior firm would provide significant benefits in all fronts.

Back then (2012), among others, we had an introductory meeting with BDO and we were really pleased with what they were promised to deliver.
Right after announcing the 2012 results which were audited by Littlejohn we have succeeded in establishing a debt facility with Barclays which among other terms has a covenant stating that the Group should be audited by one of the big 6 audit firms.

Having this in mind and as we were already running several tasks (acquisition of Notify etc.) and as the ongoing discussions with BDO were satisfactory, we decided to appoint them as our Group's auditors on the 15th of July 2013.
It is very important to note that at that time we have agreed with BDO in both scope and fees. During this scope BDO would audit directly the UK, US and Dubai enitities and perform review and top up work on the Greek and Cypriot auditors work in order to complete their audit.

Within this scope, we have clearly agreed that Grant Thornton Greece, who are our statutory and tax auditors of the Greek subsidiaries, will remain in place for at least 2013 given that according to the Greek tax law, a tax auditor is responsible to the tax authorities for the company that audits and a change of a tax auditor is almost impossible to occur at a date post the company's AGM date (30/6/2013). It was agreed that BDO would advice the component auditors in doing certain work and if needed they (BDO) would top up with their own work to complete their audit.

Moving forward, on the 4th of November 2013, BDO announced us that they changed their scope and fees and wanted to proceed to the audit of all Group's subsidiaries by themselves, something that by definition could not be accepted as, in that case, the Group would have to go through 2 parallel audits in Greece, both by BDO and GT, therefore, doubling the costs and effort for the same exact purpose.

Moreover, the new fees that BDO presented were double than the original ones (July appoitment agreement) followed by two alternative offers (4 in total including that of the initial engagement) that were still significantly higher than our agreement.

The rest is already known; As we were annoyed and unsatisfied with BDO's behavior, we put our audit in tender and we have received competitive quotes from 3 of the top 5 global audit firms and the Board decided to appoint Grant Thornton UK as their Greek branch were already auditing our Greek subsidiaries and the timing here was crucial (January 2014).

As stated previously, you should also notice that :

* BDO had not started its year end audit in Globo
* BDO has never raised any issue of concern in Globo's accounting practices
* BDO was asked (by us) to resign (actually replaced) in favor of GT for all the reasons we mentioned.

QUESTION 2. - Why didn't they announce the termination of BDO and the appointment of GT in January when it actually took place or even in their year end trading statement on January 28th. Also note that the BDO letter to GBO is dated Feb 2nd - some 5 weeks ago.

ANSWER 2 - The Board decided to appoint Grant Thornton UK on the 13th January 2014 when we announced it to BDO. Following this, we have signed an engagement letter with Grant Thornton UK on 12/2/2014 and as soon as we did so, we have uploaded this information on our web site.

Our trading statement related with our Group performance for 2013, was issued on 28/1/2014. At that date we had not officially engaged with Grant Thornton UK as we had not received BDO's resignation which although it was dated 3/2/2014 it was announced to us on the 6/2/2014

Moreover we did not consider that appointing a more senior auditor would be subject of an announcement as it is a positive event which should not be a price sensitive information.

That is the exact same reason why we didn't announce the appointment of BDO replacing Litteljohn during July 2014.

QUESTION 3. - Why didn't they announce the appointment of BDO - a big league auditor - to replace Littlejohn Frazier last year, as this would have surely added further credibility.

ANSWER 3. - Please refer to my previous answer.

Obviously, Globo's board does not speculate around the seniority of its auditors and in both cases we didn't use this as a tool to stimulate interest in Globo.

The credibility of Globo's accounts arise from the fact that since 2007 and for 6 consecutive years as a public company, Globo have been thoroughly audited by Littlejohn and signed off with no concerns.

Moreover during these years Littlejohn's work have been audited (as part of the standard procedures) by AQR and have passed succesfully the qualification of standards and work.

QUESTION 4 - Why did the BDO "scope and cost matter" become a year end issue rather than something that was identified and addressed much earlier.

ANSWER 4. - This is something that i have addressed previously; we have originally agreed with BDO in both scope and fees, however, they came back to us at the 4th of November 2013 with a different approach, as mentioned before. This is the reason why this happened at the year end.

QUESTION 5. - An interesting comment from a respected poster on TMF this afternoon.
"Globo have just issued a factual incorrect RNS updating the market here: It witters on about auditors before getting to the factually incorrect tripe: "As Globo is currently in a Close Period it cannot comment on trading, but refers investors to the Trading Update of January 28th which indicates strong operating performance, balance sheet and cash generation." This is 100% pure garbage. The "Close Period" exists so as to prohibit director from dealing during periods of time when they are likely to be in possession of sensitive data. Here’s the AIM rules:
http://www.londonstockexchange.com/companies-and-advisors/aim/advisers/rules/aim-rules-for-companies.pdf

Note how the definition of “Close Period” is only used in rule 21. Companies who hide behind statements such as “It’s a Close Period so we can’t tell you anything.” Are (a) liars and (b) hiding something!" JakNife

These delays in providing financial announcements, and apparent inability to understand the rules, just undermines credibility and hands ammunition to the shorters whose antics have also hit the shareprice.

ANSWER 5. - Globo is not delaying in providing any financial announcement. Since the year end trading update, Globo has provided 3 additional announcements about significant events that were in a mature phase of announcement.
According to our understanding, Globo's board is in closed period until we will announce the Group's financial results for 2014. At the same point we have been advised that it is not a good practice to release trading updates in a close period. At the same time please note that several Directors are willing to buy more shares as we speak and are locked in the Closed Period.

I hope the above answers provide clarity in the integrity of our decision to appoint Grant Thornton UK as the full auditor of our Group.

Many thanks and best regards,

Dimitris Gryparis
CFO
Globo plc

Monty9

11th Mar '14

Thank you swooped - that is by far the best and only comprehensive comment I have read on the matter. The CFO is detailed and rational and convinces me. Sadly the volta face by BDO is no surprise, I have been on the receiving end of similar thumbscrew tactics from even larger audit firms.

swooped

1st Apr '14

Think a few need to read this!

hxxp://messels.com/?cat=350

Apology to Globo Plc – In a recent article about auditing entitled “Would you prefer good auditors or bad auditors? If good then consider BDO”, we made a comment about Globo Plc. If any reader inferred from this comment that the financial statements of Globo Plc were inaccurate or that the directors of Globo Plc were misleading shareholders, this was not our intention and we make no such assertions. We are pleased to make this apology and have removed the article from our website. We apologise unreservedly to Globo Plc.

cig

1st Apr '14

How do you expect people to interpret it? Seems to be one more bright red flag...

pka

31st Oct '15

I think this is a fascinating post and set of comments from March 2014, in the light of what happened to Globo last week. The following extract from Paul Scott's comment on this post has turned out to be particularly wise and prescient:

"So it sounds to me like Globo have something to hide. I've long suspected that they are probably cooking the books here - because none of the profit ever turns into cash, and various Debtors are piling up on the Balance Sheet - the classic sign of artificially inflated profit. Moreover the decision to de-consolidate a subsidiary and change it into an associate, was in my view highly suspicious, and probably a blatant attempt to get more debits off the group Balance Sheet. The nature of its sale was also ridiculous - it was actually given away, together with a load of cash, in return for supposed deferred payment terms. So the book value of the associate is essentially another fictitious number."

Well done Paul!

carmensfella

1st Nov '15

Just in case any of you reading this have been affected by the Globo announcements last week
I think it is critical that those of you invested in Globo get a really strong and large group of shareholders together for a campaign and have it backed and endorsed by a shareholder organisation and ShareSoc are trying to help in this area so this is a good starting point..

http://www.sharesoc.org/globo.html

Personally I do not like to see resignations by directors and nomads just at the point when all the hard work needs to be done to help investors and shareholders to understand and hopefully recover something from the situation.

Why have the non executive director and company secretary resigned ?

What are the AIM team at the LSE planning to do for investors as it is very unlikely a replacement nomad will be found and delisting looks inevitable ?

Is an EGM needed to add shareholder action/campaign representation to the board of Globo ?

What will the larger institutional investors do in this situation ?

ShareSoc will certainly try to get as many answers as possible through official sources so do add your name and join the campaign.

http://www.sharesoc.org/globo.html

BlueFrew

1st Nov '15

It's worth noting the original dates of these discussions about whether things were wrong at Quindell and Globo.

Without Gotham, PWC would never have went through the books at Quindell. Were it not for the kamikaze actions of Slater and Gordon then shareholders would have been in a similar situation to the situation Globo shareholders find themselves in now.

Without Quintessential Capital, the board of Globo would not have wanted to initiate a forensic audit. That has got us to where we are today.

While Sharesoc continues to publish pieces on it's blog criticising the actions of the likes of Gotham and QCM then I would certainly not support it. Judging from some of the commentary around Globo at the time, I think others share similar views, but obviously I can only speak for myself.

People may not like the idea of the likes of Gotham and QCM making money from shorting Quindell, Globo, et al, but what is the alternative? Concerns were raised in the public domain for long enough. Everybody who should have acted sat on their hands. Without a catalyst the market cap of these companies can keep rising based on fictitious revenue, sucking in more and more money from private investors.

As private investors we should be applauding the actions of QCM in putting a stop to the Globo fraud.

(Disclosure: Short Globo)

Nicowilson

2nd Nov '15

Well done Paul

GBO: i'd appreciate thoughts on todays change of auditor

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DJLJ23

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