K+S Group, Kassel (K+S), said on Nov. 25 it believes the final examination findings by the German Financial Reporting Enforcement Panel (FREP-DPR) from the examination of the company’s full-year 2019 and first-half 2020 financial statements will not result in valuation adjustments.
According to K+S, the final findings do not result in any adjustment requirements for the valuations of the Potash and Magnesium Products cash-generating unit (CGU Potash) in the financial statements as of Dec. 31, 2019, and the subsequent statement of 2020.
In the preliminary findings regarding the consolidated financial statements as of Dec. 31, 2019, issued by DPR in November, the financial watchdog said the value in use of the CGU Potash “had not been reliably determined” and “was significantly overstated,” and “therefore that recoverability had not been demonstrated” (GM Nov. 12, p. 30). These preliminary findings are no longer included in the final findings issued by the DPR on Nov. 25, K+S said.
“We consider this to be confirmation that a valuation adjustment was not required as of Dec. 31, 2019. This was also made clear to the DPR in our extensive written and verbal statements,” said K+S CFO Thorsten Boeckers.
The DPR’s final findings on the financial statements as of Dec. 31, 2019, are now limited to the fact that material assumptions, changes in assumptions, discretionary decisions, and estimation uncertainties in connection with the impairment test of the CGU Potash had not been adequately reported, he said. The company noted this is a breach of the German Securities Trading Act.
Regarding the abbreviated consolidated financial statements as of June 30, 2020, the DPR said K+S did not perform an impairment test on the CGU Potash despite indications of impairment, and that significant events and their effects on the financial position had not been presented with sufficient clarity in the interim management report. That is also a breach of financial disclosure rules.
The company was requested by the DPR to indicate whether it agrees or disagrees with the findings by Dec. 9. On Dec. 2, K+S reported it notified the DPR that it agrees with the findings.
Once the DPR has forwarded the examination findings and K+S has given its consent to the German Federal Financial Supervisory Authority (BaFin), the proceedings at the DPR are terminated.
BaFin had requested this past February for the K+S financial statements to be examined by the DPR, citing the reason for the probe as assets reported in the financial statements – in particular non-current assets – may be overstated (GM Feb. 19, p. 35).