Regulators still probing Fonterra shareholder's complaint about auditing, accounts

$4 billion wiped off Fonterra shareholders' balance sheets in 2018 and 2019, says council.

The Financial Markets Authority says one year on, its investigation into a Fonterra shareholder's complaint about the valuation and auditing of the dairy company's assets is still ongoing.

One of Fonterra's biggest shareholders, Colin Armer, took his concerns about Fonterra's shock asset writedowns in FY19 and financial statements for 2015-2019 to the regulator in September last year.

Also still ongoing are inquiries into Armer's complaint by the frontline regulator of auditors, NZICA, the chartered accountants organisation. The FMA engaged with NZICA over the complaint. Neither entity commented further.

New Zealand's biggest company in FY19 posted asset writedowns and accounting adjustments of $826 million and a net loss of $605m.

Around $4 billion - representing 5 per cent of dairy farm equity in New Zealand - was wiped off the balance sheets of Fonterra's 10,000 farmer-owners in FY18 and FY19, shareholder watchdog the Fonterra Shareholders' Council calculated.

Armer said at the time of his complaint that shareholders had been badly let down by the company's leaders, the council and auditor PwC.

The former Fonterra director claimed there had been inconsistent valuation methods for the carrying values of Fonterra's $750m investment in China's Beingmate company and of China Farms, a $1b loss-making investment. The farms business has recently been sold and the Beingmate stake is slowly being sold off as Chinese divestment regulations allow.

Armer also asked the FMA to investigate Fonterra directors' calculations on executive performance pay and why they were not independently audited.

PwC had been Fonterra's auditor since the dairy exporter's formation in 2001. It surrendered the contract last year after pressure from shareholders, including Armer, who claimed it was too close to the Fonterra board.

Two of Fonterra's directors, Bruce Hassall and Brent Goldsack are former PwC partners.

The chairman of the Fonterra Shareholders' Fund, the unit trust set up in 2012 to enable non-farmers to buy non-voting, dividend-carrying shares, is PwC's former chairman John Shewan.

Fonterra in a statement to the Herald this week said it had co-operated fully with any information requests from the FMA. "Our understanding is that they do not require any additional information from us."

"As our CFO Marc Rivers advised at the time, Fonterra met with the FMA around the announcement of the impairments in 2019 to discuss the methodology and rationale for decisions."

Armer declined to comment.

PwC this month said it had set up an audit advisory board that would "provide guidance and challenge" related to audit quality at the firm.

Audits were a critical component of a trusted and well-functioning capital market and the new board was part of PwC's commitment to continually improving quality, the firm said.