Freedom Foods auditor Deloitte paid $1.2m for restated accounts

Freedom Foods has restated its 2018 and 2019 accounts, which Deloitte was paid $1.2m to audit.

Freedom Foods’ dairy facility in Shepparton.

Accounting giant Deloitte is under pressure after it signed off on not one, but two sets of accounts that Freedom Foods has since restated in its $590m writedown of its business.

Analysts have questioned the role of independent auditors, whose job it is to verify company accounts to ensure the accuracy of what is reported to the market.

The Australian can reveal that Freedom Foods paid Deloitte $5.4m to audit its accounts and provide other services over the past 10 years, including $1.2m for the company’s 2018 and 2019 accounts, which have since been restated and subject to the massive writedown.

When Freedom’s board launched a forensic investigation in June after identifying a series of accounting discrepancies a Deloitte spokesman told The Australian: “We stand by our audit. Beyond that we do not comment on client matters.”

Deloitte did not respond to questions from The Australian on Wednesday about if it still stood by its audit after Freedom’s board restated both the 2019 and 2018 accounts on Monday.

In Deloitte’s report, which accompanied Freedom’s 2020 accounts — and a job it was paid $684,639 to complete — it said “no reliance” should be placed on the restated accounts, citing insufficient evidence.

For example, 2019’s $55.2m in earnings before interest tax, depreciation and amortisation had since been restated as a loss of $88m.

“We have been unable to obtain sufficient appropriate audit evidence to determine whether the restatements to the consolidated statement of financial position as at June 30, 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cashflows for the year ended June 30, 2019, and related notes to the financial report are appropriate,” Deloitte partner David White wrote in the auditors report.

“As a result, no reliance should be placed on the abovementioned comparative information.”

Mr White then wrote that Deloitte completed its audit “in accordance with Australian Auditing Standards”.

“We are independent of the (Freedom) group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants that are relevant to our audit of the financial report in Australia.

“We have also fulfilled our other ethical responsibilities in accordance with the code.”

Freedom waited until after the close of market on Monday to reveal that an internal accounting investigation had forced it to restate its accounts for the past two financial years and led to a $590m writedown, or 70 per cent of its market capitalisation.

Of that, $372.8m reflects changes to accounting policies and practices. A further $75.9m relates to writedowns of goodwill and brands, while $60.1m comprises “out-of-date, unsaleable and obsolete inventory”. The remainder, or $38.9m, accounts for a reduction in the value of capitalised new costs.

The Australian Securities & Investments Commission is now investigating the company, and has said that much of the writedowns relate to capitalisation costs not being treated as expenses, new products being sold below cost and accounting treatments being “based on unrealistic assumptions”.

Freedom is in the final stages of completing $280m capital raising to repair its balance sheet. Its biggest investor, Arrovest, the private investment company of the billionaire Perich family, has confirmed it will participate in the capital raising.