It is encouraging to see that an audit of the Big Four calls is willing to withdraw its approval from a company that does not cooperate
In the battle for financial probity, investors can quickly become collateral damage. Ask the shareholders of Solutions 30 if not. The IT subcontractor, which is listed on the Paris stock exchange, sank yesterday morning after publishing the unsigned annual accounts of the audit EY. That creates a possibly prolonged and painful limbo.
Shares in Solutions 30 had been suspended for two weeks after short seller Muddy Waters criticized its business practices. But the fight with your auditor is much more serious. On Sunday, when publishing its 2020 annual report, Solutions 30 included a rare “disclaimer of opinion” in which EY claimed that the company had not provided the information necessary to express an opinion on its accounts. Consequently, EY warned, “undetected errors in the declaration can be both specific and general.” Shares in Solutions 30 fell as much as 72% when trading resumed on Monday.
Although the details of the dissent remain unclear, it is encouraging to see that an audit of the Big Four calls is willing to withdraw its approval from a company that does not cooperate. EY has added reasons to be cautious: The auditor is under multiple investigations in Germany for failing to heed warnings about its Wirecard client, which last year collapsed due to massive fraud. A stricter approach to auditing should act as a brake for those companies willing to disguise their numbers.
Still, the result is far from ideal for shareholders who are still investors in a listed company that lacks an audit of figures for most of the last financial year. The CEO of the company, Gianbeppi Fortis, has raised the idea of a total acquisition. But the prospective buyer is unlikely to offer a hefty premium as long as the company operates under a cloud. That’s a sign that more collateral damage is coming.