“These matters relate to revenue cut-off, and non-commercial transactions… As a result, adjustments with the effect of reducing sales of approximately $5.9m and $2.2m have been made to the 2018 and 2017 financial results respectively,” said the company, which recently unveiled a new management team following a probe into accounting irregularities that has delayed the publication of its full-year results and prompted a suspension of its shares.
News of potential issues with PureCircle’s accounts first emerged in September 2019, when it postponed the publication of its results for the year ended June 30 2019 after an audit by PricewaterhouseCoopers identified a “potential issue relating to the classification and valuation of certain inventory items.”
Inventory valuation off by $23m
KPMG has since determined that the issues “have had the cumulative effect of reducing inventory by approximately $23m and consequently increasing cost of goods sold by the same amount, spread across financial years 2018 and 2019, with potentially a relatively modest adjustment to 2017.”
Asked how PureCircle could have overvalued its inventory to the tune of $23m, VP of global marketing Alina Slotnik told FoodNavigator-USA in late January that PureCircle was constantly developing new technologies and value-added products.
“Were constantly launching new ingredients from the same leaf and the same plant and the balance of ingredient volume that we produce at different price points and values off of that leaf stream is constantly changing. It's hard to characterize yet because our audit is just completing and the financials haven't been issued, and I don't know which specific kinds of inventories were re-classified, but it's about how different products in our portfolio are valued against each other."
Probe is complete, but accounts yet to be signed off
PureCircle said today that it does not expect the amounts cited above to change materially in its audited financial statements for the year ended 30 June 2019, but says they are “still subject to any further audit adjustments, and yet to be signed off by the Group's auditors, PricewaterhouseCoopers.”
Led by its new chief financial officer Jimmy Lim Kian Thong and overseen by the firm’s audit committee, PureCircle is taking actions to prevent the incidents that resulted in the accounting misstatements from re-occurring, including:
- “Undertaking significant steps” to improve systems, processes and controls;
- “Increasing the resources and improving the capabilities of the controlling function based in Malaysia;"
- Increasing financial oversight by the group CFO; and
- Strengthening internal audit and risk management functions.
