The Numbers That Arrived Too Late
You are a non-executive director and member of the audit committee of a listed equipment manufacturer with $640 million revenue. At the audit committee meeting in February, the CFO presents full-year results showing EBITDA of $71 million against guidance of $78 million. The statutory audit is complete and unqualified. During questioning, the CFO mentions that a $9 million receivable from a single customer was settled in January, three weeks after year-end, at 60 cents in the dollar. The receivable was carried at full value at 31 December. The external auditor says the settlement was a subsequent event that does not require adjustment because, in their view, the impairment indicator arose after balance date. The CFO agrees. You are not an accountant. The audit committee chair moves to accept the accounts. The board meets in four days to approve the financial report.
1. What is the governance question in front of you, as distinct from the accounting question, and how should a non-accountant director handle it?
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The accounting question is whether the receivable should have been impaired at 31 December. The governance question is different and more important: did the board receive information in time and in a form that let it exercise oversight, and is it now being asked to approve accounts on the strength of an assurance it cannot test?
Three things are visible to a non-accountant:
- The number moved guidance. $9 million at 60 cents is a $3.6 million shortfall, and EBITDA missed guidance by $7 million. The size alone means the board should understand the judgement.
- The auditor and CFO agree, and agreement is not evidence. Two parties concurring on a judgement call is normal and often correct, but the board's job is to test whether the judgement was reasoned, not to count votes.
- You are being asked to approve in four days on a matter that surfaced in questioning rather than in papers. That is the governance failure, regardless of the accounting outcome.
How a non-accountant handles it:
- Do not pretend to adjudicate the accounting standard. Ask the auditor to explain, in plain language, what evidence they examined about the customer's condition at 31 December and what would have changed their view.
- Ask what the customer's payment history and any communication before year-end showed. If the customer was already in difficulty in November, the indicator predates balance date.
- Ask whether the judgement was documented contemporaneously or reconstructed after the settlement.
- Ask the CFO what the board should have been told earlier.
- Put your concerns on the record, in the minutes, whether or not you prevail.
2. What do you do in the four days before the board meeting, and what is your position if the board proceeds to approve?
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In the four days:
- Write to the audit committee chair and the board chair setting out your concern in factual terms: the receivable, the settlement terms, the timing, the guidance miss, and the fact that the information emerged in questioning. Ask for the item to be tabled as a discrete agenda item with the auditor present.
- Request a short written note from the auditor on the evidence base for their view, including what inquiries they made about the customer's position before 31 December. This is a reasonable request and a refusal is itself informative.
- Ask the CFO for the customer's account history and any pre-year-end correspondence about payment difficulty.
- Speak to the audit committee chair privately to test whether the committee's acceptance was considered or reflexive.
At the board meeting:
- Ask for the item to be taken before approval of the financial report.
- Ask the auditor directly: what would have changed your view, and when did you first learn of the customer's difficulty?
- If satisfied, vote to approve and record that you tested the judgement.
- If not satisfied, do not vote to approve. Ask for the accounts to be deferred for further work, even if that delays lodgement and creates market disclosure consequences.
If the board approves over your objection:
- Ensure your dissent is minuted precisely, including the questions you asked and the answers given.
- Consider whether the matter triggers a continuous disclosure obligation and whether the board has addressed it.
- Escalate to the chair in writing afterwards, and consider external advice on your own position.
Approving accounts you have not tested is not loyalty to the company; it is a failure of the duty you hold.