STEINHOFF - 50 SHADES OF GREY
Article by Midrand Accountant - Audrey Muvezwa
A classic example of the 50 Shades of Grey in Accounting
Nothing screams grey areas in accounting practices like the recent Steinhoff saga. It is the biggest financial scandal to have hit South African shores, ever.
Steinhoff International Holdings is a furniture and clothing retailer that is listed on the JSE and in Germany. It holds famous South African brands that you and I can identify with – here are just a few: Ackermans, Dunns, Pep, Shoe City, Tekkie Town in the clothing space and Bradlows, Hifi Corp, Incredible Connection, Rochester, Russells, Sleepmasters and Timbercity in the furniture space.
Steinhoff International Holdings is (or was) one of the JSE’s top 40 shares and has lost more than 75% of its value since early December 2017. It has caused a public outcry and the detrimental effects of its unethical accounting practices has sent tremors throughout the world.
Steinhoff allegedly misrepresented and concealed the true workings of the group by using creative accounting. Profits were created, profits were moved, cash didn’t flow from the profits reported and the structure of Steinhoff is nothing short of a maze. It is the result of playing board games with tax laws and accounting principles.
I was doing some research on Steinhoff and came across this extract under ‘PEOPLE’ – “One of Steinhoff’s greatest assets is its reputation. It is also its most fragile asset. Years of determination and hard work by thousands of Steinhoff employees have helped to establish the leadership position it holds today.”
I found this ironic since the accounting malpractices and fraud may result in liquidation as Steinhoff is already mass-selling assets in order to pay off long-term debt. If this is the end of Steinhoff, the stores will close and 130,000 employees in 30 countries will be left without a job.
Steinhoff has wiped out the value of South African’s pension funds and the creative accounting has helped to extract money out of our economy. This means no taxes were paid and those most in need of help are left worse off than before. We are poorer as a nation because of the Steinhoff collapse.
Fund managers and auditors alike are baffled - the alleged fraud was so well concealed. It was expertly disguised to look legitimate.
Accounting is not just about debits and credits. It’s about telling the true story of your business and about working on its shortcomings.
How do you account for your business?