Dot Coms Fail Successive Corporate Tests
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[SYDNEY, AUSTRALIA>The financial reporting practices of dot-com companies have come under fire from a professional body of company secretaries whose role is to oversee corporate governance and compliance.
Chartered Secretaries Australia (CSA), made up of company secretaries from 200 high profile public companies including Ansett, Qantas, Minter Ellison, American Express and the Australian Stock Exchange, has said that new economy financial reporting practices "leave a lot to be desired" if they are to regain shareholder confidence and market credibility.
In November last year, the Australian Securities and Investments Commission (ASIC) announced an investigation of 53 new economy companies (see story), at the same time as troubled trader KGrind was publicly exposed by its administrator as trading insolvently.
The commission's inquiry follows the completion of a surveillance project in which it monitored the financial reports and cash flow statements of 140 companies. ASIC said the checkup was a result of increasing public concern about the standards of disclosure by high tech companies.
Typical errors found were inaccurate cash flow statements which did not tie up quarter to quarter and premature recognition of revenue.
In February, about 25 dot com firms were asked to supply further details of their cash reserves and business plans to the ASX following queries on their December quarter cash flow statements (see story).
Companies including Sanity.com, Isis Communications, Min Tech 8, Travelshop, Pocketmail, Select-Tel, Surfboard Securities and Quadtel were asked to individually justify their negative cash flows and queried as to how long their current rate of cash burn could be sustained.
According to CSA, 95 per cent of respondents to the member survey 'New Economy Corporate Governance and Financial Reporting Practices', believed the majority of new technology companies lacked appropriate corporate governance systems and trailed their counterparts in traditional industries substantially.
"It is quite clear that the business community believes that the roller coaster rides that many new technology companies have suffered over the past twelve months are in some part attributable to the lack of appropriate corporate governance measures," the CSA's chief executive officer Tim Sheehy said.
"It is time now for these companies to bring their business practices in line with the rest of corporate Australia," he said. " While it is unfortunate that a particular sector is being singled out for criticism, it is obviously time for those companies to lift their game."
The major factor contributing to these companies' poor performance was perceive to be one of inexperience, according to the report.
"The management of many emerging technology companies has a very limited amount of business experience outside of technology," Mr Sheehy said. "Couple that with a general reluctance by many experienced company directors to take on the risk involved with these emerging ventures, and you have a situation where much-needed skills are simply not present within the sector."
While the corporate governance practices of the companies themselves were heavily critisised by the member companies, current regulation was believed to provide an appropriate framework. Over 83 per cent of respondents believed that the ASX's regulatory measures were adequate and that additional regulation was unnecessary.
ther areas singled out for criticism were the remuneration of senior executives and companies' attitude and p