Ernst & Young (E&Y) has defended the audit opinion it gave on the 2012 consolidated financial statements of its Singapore based agribusiness client Olam after US short seller Carson Block questioned its financial position this week.
Block, who leads the research firm Muddy Watters, claims Olam’s business model is "unsustainable" suggesting it is based on an "aggressive" approach to accounting practices which highly leverages its financial position.
However, in a confidential letter E&Y sent to Olam, the audit firm assures the company’s consolidated financial statements gave a true and fair view of its accounts.
In a statement Olam reiterated its financial statements are subject to annual audits by E&Y and quoted the letter sent by the Big Four to support its claims.
E&Y also wrote the consolidated financial statements issued by Olam were prepared in accordance with Singapore Financial Reporting Standards (SFRS) as were the audits conducted by the Big Four firm.
The Big Four firm explained Olam’s latest statutory audit was in respect of the consolidated financial statements for the year ended 30 June 2012.
"Our audit report for those financial statements, which was issued on 28 September 2012, was not qualified or otherwise modified in any respect and our opinion was that Olam’s consolidated financial statements gave a true and fair view of its state of affairs and financial results for the year then ended," E&Y wrote.
E&Y remarked that its audit reports on Olam’s consolidated financial statements for previous years were also not modified.E&Y told the International Accounting Bulletin it had issued the aforementioned letter but declined to comment further, saying: "given our obligation to maintain client confidentiality."
Legal actionOlam, whose shares have since dropped on both the Singapore and US stock exchanges, has now taken legal action against Block for the remarks made in London.
Block’s spokesperson refused to comment on the allegations but added "E&Y also served as the auditor for Sino-Forest".
Earlier this year, a report issued by Muddy Watters accused the Chinese Canadian listed forestry company Sino-Forest of fraud.
E&Y, which was the company’s auditor at the time, resigned due to the failure of the company to address outstanding issues in relation to its 2011 financial statements.
Muddy Watters allegation’s preceded the bankruptcy of Sino-Forest and prompted an investigation undertaken by the Ontario Securities Commission, which found some Sino-Forest executives guilty of fraud.
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