ACCOUNTING RESULTS: Independent News & Media (INM) may face inquiries by both the Dublin and London stock exchanges over its accounting practices.
The company could be technically in breach of the two exchanges' listing rules following a "departure" from standard accounting rules in preparing its 2001 accounts.
The decision turned a loss of €29.2 million after tax and financing costs into a profit of €3.1 million. The €32.5 million boost to its profits was achieved by including in the accounts a proportion of the profit made when it sold its New Zealand subsidiary to its Australian subsidiary last year. Irish and British accounting rules stipulate that any profit made on transactions between members of the same group should be "eliminated in full" in the parent company accounts.
The decision to ignore this rule is justified - according to INM - because it only owned 39.5 per cent of the Australian subsidiary APN which bought Wilson & Horton, the 100 per cent owned New Zealand operation. As a result it only has to "eliminate" 39.5 per cent of the profit it made on the sale of Wilson & Horton in order to balance the books. In addition the INM directors - who control the APN board - stepped aside from the decision to buy Wilson & Horton.
Under the listing rules of the London Stock Exchange, a company's annual report and accounts must "have been prepared in accordance with the issuers national law and in all material respects with the United Kingdom Generally Accepted Accounting Principles". The Irish Stock Exchange uses the London listing rules book.
A spokesman for INM said yesterday that the company was satisfied that it had complied with the listing rules and that this was reflected in the unqualified audit opinion given by PricewaterhousCoopers.
The UK Listing Authority - which is part of the Financial Services Authority - is responsible for policing listing rules. A spokeswoman for the Listing Authority said that they did not comment on individual companies but any material deviation from standard accounting practice is routinely examined. She said the matter would be discussed with the company in question's auditors. The body may then take independent advise and if it decides there has been a breach of the listing rules it has a range of sanctions available.
The Irish Stock Exchange adopts a similar policy, according to a spokesman.
The decision to include a proportion of the proceeds from the sale of Wilson & Horton to APN has a significant impact on INM's pre-tax profits. Without the Wilson & Horton fillip, the reported pre-tax profits fall from €61.8 million to €29.5 million while the profits after tax and minority interests of €3.1 million would be a loss of €29.2 million, the first by the group in more than 10 years. The retained loss figure - which includes the cost of paying dividends - would jump from €39.8 million to €72.10 million.
A spokeswoman for the Irish Association of Investment Managers said that feedback from the association's members was that they were comfortable with INM's departure from accounting norms because the decision was disclosed in the report.
"The directors with the concurrence of the auditors, believe that it would be inappropriate, and would fail to give a true and fair view, not to recognise the profit attributable to the 60.5 per cent share of APN not owned by the Group at that time, as the Group was precluded from exercising any influence over APN's approval of the transaction," according to the annual report.
INM is the largest media organisation in Ireland and publishes the Irish Independent and Sunday Indpendent among other titles. It is 27 per cent owned by its executive chairman Sir Anthony O'Reilly.
