K+S Group, Kassel, K+S has received preliminary findings from Germany’s Financial Reporting Enforcement Panel (DPR) in the procedure for the examination of the consolidated financial statements of the company as of Dec. 31, 2019, as well as the abbreviated financial statements as of June 30, 2020, and said it considers the findings to be unfounded, according to a K+S statement on Nov. 11.
The German Federal Financial Supervisory Authority (BaFin) this past February requested for the statements to be examined by the DPR, citing the reason for the probe as assets reported in the financial statements 2– in particular non-current assets – may be overstated. (GM Feb. 19, p. 35).
With regard to the consolidated financial statements as of December 31, 2019, K+S said the DPR has not objected to the long-term potash price assumptions made by the company, but it is, however, of the preliminary opinion that material assumptions underlying the value in use determined for the impairment test of the Potash and Magnesium Products cash generating unit (CGU Potash) “were not appropriate.”
Furthermore, DPR said the changes made to the assumptions compared with the previous year were in part “not plausible,” and the uncertainty associated with the assets was not sufficiently taken into account.
In the opinion of the DPR, the value in use of the CGU Potash had therefore not been “reliably determined and had been significantly overstated,” and therefore the recoverability had not been demonstrated. In detail, this relates to assumptions regarding the quantity framework (annual production capacity, mineable quantities, the life of the mines, capacity utilization, and the related disclosures in the notes).
K+S said it does not share the position of the DPR and is of the opinion the recoverability has been appropriately determined and demonstrated by the value in use calculation within the scope of discretion.
With regard to the abbreviated consolidated financial statements as of June 30, 2020, the company reported the DPR is of the preliminary opinion that the recoverability of the net assets of the CGU Potash has not been demonstrated, and despite negative potash price development, no impairment test had been carried out.
K+S said it is of the opinion that no impairment test was necessary for the CGU Potash as of this reporting date. It said the price development has been adequately taken into account.
Furthermore, K+S said the company and the DPR disagree on the presentation of material events and their effects in the interim management report.
K+S has provided the DPR with further information, and the proceedings are ongoing.
The company said it received the preliminary results from the DPR on Sept. 6 and 14, but for the protection of ongoing proceedings with DPR, it decided to delay their publication. But with the regular reporting of financial results for the third quarter, it was obliged to make this announcement.