Disclosure: Short PLUS. This content is not directed toward persons with residence or place of business in the United Kingdom. By accessing, transmitting, or reviewing this material, you acknowledge that the author has represented his honest opinion and made statements of fact believed to be true at the time of publication. No content herein should be construed as a recommendation to take action with respect to any security.
Part 1: Short Plus500
Part 2: Bucket Shop
Part 3: Customer Lifetime Value
Part 4: Companies House Inconsistencies
Part 5: Audit Opinions
Part 6: Unlicensed Activity
Part 7: Whois Plus500?
Part 8: Scalping
Part 9: Worldwide Web
Part 10: Competition
Part 11: Unanswered Questions
Part 12: Legal Consequences
The auditors of Plus500′s UK accounts do not inspire confidence.
In some of the discrepancies identified in Part 4, it is the Admission Document or the 2013 and 2014 Group accounts that appear to be overstated when compared the Plus500UK subsidiary filings. In others, statements in the Plus500UK subsidiary filings appear to be exaggerations relative to the company’s statements elsewhere. It is difficult to determine which filings, if any, are more reliable. While it is not generally the responsibility of auditors to proofread basic statements about the business by the company in a director’s report, one wonders if similar errors might be present elsewhere.
For the year ended 2013, the audits of Plus500UK, Plus500AU, and Plus500 Ltd were performed by three separate, unaffiliated audit firms. For 2014, Plus500 has begun to take steps to clean up the audit structure by having PricewaterhouseCoopers affiliates in the UK and Cyprus perform the local audits. However, in 2013, Kesselman & Kesselman (PwC) in Israel would have had to rely on the work of Baker Tilly (formerly RSM Tenon) in the UK and Gauld Tulloch Bove in Australia.
The 2010-2013 auditor of Plus500UK is a cause for concern. RSM Tenon nearly collapsed in 2012 after being discovered as having misrepresented its own accounts. After Baker Tilly bought the firm out of administration in 2013, the same RSM Tenon audit partner responsible for the 2012 report, Malcolm Pirouet, signed the 2013 report on behalf of Baker Tilly.
Nor does the replacement of RSM Tenon/Baker Tilly with PwC necessarily improve the situation in the UK. After all, PwC was RSM Tenon’s auditor. Perhaps more importantly, just after completing the 2014 audit, Plus500UK hired Gareth Derbyshire from PwC to serve as head of compliance. Though not required, it is common for a company to change auditors after making a senior hire from its auditor. The new appointment creates the appearance of a potential auditor independence issue.
Whatever the potential risks of the audit structure, the audit of the 2013 Group accounts was completed on 10 March 2014, which was at least after the Australia report on 7 March and the UK report on 3 March.
In 2015, by contrast, Kesselman & Kesselman’s report on the 2014 Group accounts was dated 16 March 2015. However, Plus500CY’s audit report was not signed until 29 April 2015 and Plus500UK’s is dated 10 April 2015. What exactly was Kesselman & Kesselman auditing in March of this year? Were they relying on unaudited subsidiary results? In the context of a significant restatement of the UK subsidiary’s accounts, how could Kesselman & Kesselman complete its Group audit ahead of time?
The 2014 Plus500UK accounts include significant inter-company payables (“Other amounts owed to group undertakings” at note 17) that would be eliminated upon consolidation in the Group accounts. The revised revenue recognition policy at Plus500UK implies that amounts owed under the inter-company agreement are paid to the Parent immediately and therefore not even recognized in revenue at the subsidiary level. How, then, did the amount of inter-company payables balloon from GBP 1.6 million in 2012 to 8.8 million in 2013 and 12.4 million in 2014? Are the audited inter-company amounts reported by Plus500UK the same amounts the company reported to Kesselman & Kesselman for the Group audit?