Fuji Xerox NZ restates accounts, more than doubling 2016 losses to $72 million

Tuesday 24th October 2017

Fuji Xerox New Zealand has restated its accounts after the Japanese parent uncovered a number of matters that had been "inappropriately accounted", resulting in its 2016 losses more than doubling to about $72 million.

The loss in the year ended March 31, 2016 had previously been reported as $32 million but in the process of re-assessing the accounts over a number of years, the company "derecognised" about $45 million of equipment revenue. As a result, total 2016 revenue was restated as $182 million, down from the $227 million reported last year.

Fuji Xerox also restated its financial position for the 2016 and 2015 years, slashing $152 million of intercompany receivables from its assets for 2016 while adding $112 million of intercompany payables to liabilities. For 2015 it removed $168 million of intercompany receivables and added $98 million of intercompany payables.

The company's all-of-government contracts with the New Zealand government have been suspended or ended in the wake of the accounting anomalies, which included some customer contracts "being incorrectly classified as sales-type finance leases". The subsequent company investigation also found "a number of historical revenue recognition issues relating to the timing and measurement of equipment revenue related to sales-type finance leases," notes to its 2017 accounts say.

Former employees say salespeople were able to overstate their sales and reap the benefits through commissions, with sports cars in the carpark and other big-spending behaviours evident. An independent report commissioned by the Japanese parent Fujifilm Holdings revealed $355 million of "inappropriate accounting" in operations in New Zealand and Australia between 2011 and 2016. Earlier this month, the Serious Fraud Office said it was taking another look at Fuji Xerox New Zealand, having opted not to proceed with a formal investigation last year.

KPMG includes an 'emphasis of matters' section in its audit of the 2017 accounts to cover the restated accounts and the company's going-concern status.

"The company uncovered significant accounting irregularities during the year ended 31 March 2017, relating to a number of matters that had been inappropriately accounted for over a number of prior years," KPMG says. "The key area of judgement and estimation was the company's reassessment of the classification of lease contracts into either finance leases or operating leases which has a material impact on the underlying accounting presentation."

"As a result of the reinstatement, the company has incurred significant trading losses and, as at 31 March 2017, the company had retained losses of $367" million, KPMG says, adding that Fuji Xerox NZ "is dependent on continuing letters of support from its parent."

The 2017 accounts show the company's loss in the latest year narrowed to $11.5 million on revenue of about $188 million. Net current liabilities were $357 million.

Fuji Xerox's chairman Tadahito Yamamoto, deputy president Haruhiko Yoshida and two Fuji Xerox directors, Katsuhiko Yanagawa and Jun Takagi, all resigned in the wake of the scandal. Meanwhile, sacked former Fuji Xerox New Zealand managing director Gavin Pollard has claimed he was made a scapegoat by the Japanese parent over the unit's dodgy accounting and overpayment of sales commissions and is fighting to get his job back via the Employment Relations Authority.

Pollard had been Fuji Xerox New Zealand's general manager of national sales operations between 2012 and 2015 before he was appointed to the MD role in April 2015, replacing Neil Whittaker who had shifted to Australia.

Not long after his promotion the Japanese parent was alerted by a whistleblower to inappropriate accounting practices at the New Zealand unit, which were confirmed by an independent audit that identified possible fraud that took place when Pollard was part of the executive team as GM sales.

Last month the company named chief operating officer Peter Thomas, a former Ministry of Business, Innovation and Employment deputy CEO, as MD.

(BusinessDesk)

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