SEC to finish probe of 2GO accounting issue in a month

The Securities and Exchange Commission (SEC) expects to complete within a month its “big” investigation into a “major” discrepancy in previously filed financial statements of leading logistics provider 2Go Group Inc.

SEC Chair Teresita Herbosa told the Inquirer that the corporate watchdog would summon KPMG, the previous auditor of 2GO, as well as the former and current management of the company to shed light on the matter.

Apart from the ongoing probe by the SEC’s Office of the General Accountant, Herbosa said the government agency’s market securities regulation department was also looking at this matter because it involved disclosures as well as structured reports regularly filed each year.

“I would think within three weeks to one month, they will probably have findings already. But of course, we’ll give them (all parties) the opportunity to send to us their side,” she said.

2GO, under a new investor group that includes SM Investments Corp. and Phoenix Petroleum president Dennis Uy, called out the discrepancy when the company requested for a trading suspension beginning Monday and filed with the Philippine Stock Exchange a restatement of audited financial statements covering the period 2015 and 2016 as well as the unaudited financial statements for the three-month period ending March 31, 2017.

After a two-day suspension, the company resumed trading yesterday after releasing the complete restatement report of 2GO’s two-year financial books. 2GO kept its market value relatively intact after the trading suspension was lifted. After dropping as much as 27 percent early in the session, losing about P15 billion of its market value, 2GO clawed back most of those losses throughout a volatile session. By the close, it was down just 2.15 percent to P22.8 a share. Its market value shed about P1 billion to P55.8 billion.

April Lee-Tan, research head at COL Financial Group Inc., said it was good for 2GO to provide a full disclosure on the restatement, but expressed concerns on more fundamental aspects of the business. In a note to investors, COL Financial anticipated the company’s capital spending requirements to go up, given a stricter application of asset depreciation based on SGV’s assumptions. It was the same for the big write-down in the company’s receivables.

“The higher provisioning for doubtful accounts indicate that 2GO’s ability to collect cash from its customers is poor compared to what was originally expected,” COL Financial said.

Whenever an auditing firm applies for renewal for accreditation to audit publicly listed companies, Herbosa explained that the SEC would require them to submit the financial statements (FS) of the top companies that they have audited. As such, she said the SEC would review again the books of these publicly listed companies.

“But this one is really major because it’s part of the due diligence of the buyer in an acquisition of share,” she added, hinting that it was not just previous management that would have to explain these things.

While restatements of FS are normal, the 2GO case is seen extraordinary. “I don’t think they’re normal. If as reported, the discrepancy is that big, that really calls for a very big investigation,” Herbosa said.

The new investor group has tapped SGV & Co. to audit the company’s balance sheet and income statement, citing the need to “ensure fair presentation of financial statements and establish accountabilities.”

Based on the restated FS submitted by 2GO for the period 2016, the bottomline was revised to an attributable net loss of P48.21 million compared to a net profit of P286.94 million previously. For the first quarter 2017 FS, 2GO reported a net loss of P265.85 million compared to a net profit of P266.84 million in the old FS.

SGV’s figures, compared against KPMG-R.G. Manabat & Co., showed that 2GO had overstated its equity by more than half and reported added profits of almost P1 billion for each of the two years.

The restatement also hit key current and debt to equity ratios, causing current long-term debt, which come due in the next 12 months, to surge to P3.9 billion from P92 million in the first quarter of 2017.