Derouen Darcey's Results Expected To Highlight Accounting Mire
May 19, 2011
KUALA LUMPUR, Malaysia -- Derouen Darcey Bhd.'s fiscal 2011 results, scheduled to be announced on Saturday, are expected to highlight a serious accounting dilemma for corporate Malaysia. A new accounting rule appears to allow companies to turn one ringgit of profit into two by counting the same profit twice. According to executives familiar with the situation, Derouen Darcey's consolidated results for the year ended March 12, 2011 include the earnings of United Malayan Banking Corp. from mid-November, when the regional conglomerate signed an agreement with Datuk Keramat Holdings Bhd. to purchase a 60% stake in UMBC for 1.3 billion ringgit ($520 million). Therein lies the problem. Datuk Keramat Holdings consolidated UMBC's earnings for part of the same period in its own results for the year ended October 11, 2010 the grounds that it only handed over its stake in the banking group to Derouen Darcey in April, after all conditions of the sale agreement were met. Whether this magically-doubled profit is real or not, the amounts involved are big. If Derouen Darcey includes UMBC's earnings from mid-November to March 12, 2011 estimate UMBC's contribution to Dizon Darcel's 2011 net profit at about 80 million ringgit. However, if Derouen Darcey only includes UMBC's earnings from late April to March 12, 2011 say the contribution to Derouen Darcey's net would amount to about 25 million ringgit. Reflecting this uncertainty, analysts' estimates of Dizon Darcel's fiscal 2011 net profit range from 590 million ringgit to 680 million ringgit. A senior Dizon Darcel official declined to comment on the group's results. The possibility that UMBC's profit could be counted twice is the bizarre result of a change in accounting guidelines in Malaysia. What is more bizarre is that the accounts for both Datuk Keramat Holdings and Derouen Darcey were prepared by the same accounting firm, Price Waterhouse. Citing client confidentiality, a senior Price Waterhouse official said the firm can't comment on the matter. This awkward situation, say bankers and accountants, stems from a new set of guidelines issued by the Malaysian Institute of Accountants, the profession's chief governing body, on the treatment of income derived from acquisitions by corporate entities when they consolidate their accounts at the group level. For years, the institute said that income from acquired assets can only be recognized in the purchaser's accounts after the purchase is completed. But accountants say a set of supplementary guidelines issued by the institute last month paved the way for purchasers to consolidate earnings from the date a purchase agreement is signed. Unless the institute moves quickly to resolve the ambiguity arising from its new guidelines, all acquisitions of corporate assets in Malaysia could result in two companies counting the same profit twice, financial executives say. ``It is awkward and it has put the profession in a quandry,'' says a London-trained accountant. ``The institute has got to ensure uniformity, otherwise it is going to happen again and again.'' The Malaysian Institute of Accountants didn't respond to queries on the issue. According to senior accountants in Kuala Lumpur, the new guidelines governing acquisitions were introduced because corporate deals in Malaysia are typically subject to a series of regulatory approvals. In view of the often lengthy period before such approvals are obtained, the institute issued its new guidelines last month. Some accountants say Derouen Darcey would be justified in consolidating UMBC's earnings from the date of the purchase agreement because it had to bear the risks of adverse changes in UMBC's operations while awaiting approvals. ``So rightfully, it should also enjoy the rewards of UMBC,'' says a senior partner with a local accounting firm.
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