LOW-COST African airline Fastjet has been compelled to restate its accounts following a Financial Reporting Council review into its accounts.
The accounting and audit watchdog forced the move after discovering a breach of accounting rules over the transfer of the aviation business of Africa-focused investor Lonrho to Fastjet in exchange for the issue of new shares in 2012.
This “constituted a reverse takeover under AIM rules” and “as a result of the issues of shares, Lonrho’s shareholding in the company increased from 3% to in excess of 70%. The company accounted for this transfer as an acquisition under IFRS 3 ‘Business Combinations’ as it considered that this better reflected the substance of the transaction”.
Following a discussion with the FRC’s conduct committee the company now “accepts that the increased shareholding and the terms of relevant shareholder agreements gave Lonrho the power to control the company.This transaction should, therefore, have been accounted for as a reverse acquisition, with the company being the acquiree rather than the acquirer for accounting purposes, in accordance with the requirements of IFRS 3 ‘Business Combinations’.
“As a consequence, goodwill and other fair value adjustments totalling $45m (£29m) should not have been recognised by the company. Similarly, the impairment charge relating to these items should not have been included in the income statement subsequently. Instead, the company’s consolidated accounts should have included the transferred assets and liabilities at their pre-combination carrying amounts.”
Fastjet has now restated the comparative amounts to the results reported in its 2014 financial statements. The value of its goodwill asset in the balance sheet at 31 December 2013 has been slashed from $11m to zero.
Loss after tax for the year ended 31 December 2013 was reduced by $26m to $55m with no impact on cash.