3. RESTATEMENT OF CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
 

During the current year, management identified the following matters which were incorrectly accounted for or presented in prior periods:

  • Vendors for Acquisition being classified as equity as opposed to debt (3.1);
  • Net vs gross and the timing of revenue recognition (3.2);
  • Timing of the recognition of provisions (3.3);
  • Incorrect offsetting of prepaid expenses and contract liabilities (3.4);
  • Deferred tax liability not eliminated on consolidation (3.5);
  • Finance lease receivables not classified appropriately between its current and non-current portions (3.6); and
  • Inappropriate classifications on the consolidated statement of financial position (3.7).

The 2019 financial statements and the consolidated statement of financial position as at 1 August 2018 have been restated to correct the prior period errors.

A brief explanation of each category of error is provided below, following which an analysis is included of the financial impact on the affected financial statement line items:
 
3.1 VFA classification
  In prior years the Group had made acquisitions of businesses through which a portion of the consideration was contingent with the Group having to deliver a number of EOH Holdings' shares to the previous owners based on profit warranties. The Group had split the classification between an equity and a liability portion. The equity portion was not subsequently remeasured and the liability was remeasured at each reporting date to fair value. The previous classification as equity was however incorrect and the entire amount should have been classified as a liability. Had the VFA been classified as a liability, the fair value movements in prior years would have been processed through the statement of profit or loss and accumulated retained earnings. The shares to be issued to vendors, within equity was overstated by R744 million as at 1 August 2018 and by R338 million as at 31 July 2019. Retained earnings was understated by the same amount respectively.
3.2 Revenue
  Principal versus agent

The Group had adopted IFRS 15 - Revenue from Contracts with Customers (IFRS 15) in the prior year. IFRS 15 requires that the Group shall determine whether the nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Group is a principal) or to arrange for those goods or services to be provided by another party (i.e. the Group is an agent). There were a number of revenue transactions, for which the Group would have been considered to be an agent, using information available in the prior year, where such revenue had been incorrectly recognised on a gross basis (as  a principal) in the prior year. This incorrect application of the accounting principles in the prior year has been adjusted as a prior period error through the reversal of revenue and cost of sales and only recognising the margin as revenue. There is no impact on gross profit, loss before tax, loss after tax and retained earnings for the prior year.

Revenue and costs recognised in advance

Previously one of the business units within the Group had revenue contracts with customers where revenue had been recognised erroneously in advance, with the associated costs to complete the projects also erroneously recognised. This resulted in an overstatement of revenue and cost of sales in the prior year of R64 million. The adjustment has been accounted for as a prior period error, resulting in a decrease in revenue and costs of sales. There is no impact on gross profit, loss before tax, loss after tax and retained earnings for the prior year.
3.3 Timing of recognition of provision
  In the prior year, the Group had raised a provision for the payment of pay-as-you-earn (PAYE), which arose in one of the subsidiaries. The Group had further increased such provision in the first half of the current year. However, the Group has identified that a portion of the increase in the provision recognised during the first half of the current year should have been recognised at the end of the previous year. Recognition of the additional provision has been accounted for as a prior period error, resulting in an increase in liabilities as well as an increase in the expenses and a decrease in retained earnings for the previous year.
3.4 Incorrect accounting of prepaid expenses
  In the prior year expenses paid upfront to suppliers on licensing and maintenance contracts were incorrectly offset against contract liabilities within trade and other payables. Such prepaid expenses should have been recognised as prepaid expenses within trade and other receivables. This resulted in an understatement of trade and other receivables, assets held for sale, trade and other payables, and liabilities directly associated with assets held for sale, with no impact on total equity.
3.5 Deferred tax on fair value adjustments
  In the prior year, an entity within the Group raised a deferred tax liability of R83 million on fair value adjustments on shares which was not reversed on consolidation as required. This resulted in an overstatement of the deferred tax liability and an understatement of other reserves and total equity in the prior year by R83 million.
3.6 Finance lease receivables split between current and non-current assets
  In the prior year, the current portion of finance lease receivables of R73 million was incorrectly shown under non-current assets in the statement of financial position and the non-current portion of R107 million was incorrectly shown under current assets. This resulted in current assets being overstated by R34 million and non-current assets being understated by the same amount. The adjustment has been accounted for as a prior period error. The restatement is contained within the finance lease receivables category only and accordingly is not shown in the tables below.
3.7 Reclassifications
 

The provision for PAYE raised in the prior year was classified as a payroll accrual and shown within trade and other payables in the statement of financial position. This prior year provision has now been reclassified from trade and other payables to provisions on the face of the statement of financial position.

Deferred income (contract liabilities) was previously shown as a separate line on the face of the statement of financial position and has now been reclassified to be shown within trade and other payables on the face of the statement of financial position.

In the prior year, there was a transfer between other reserves and retained earnings/(accumulated loss) of R111 million. Such transfer in the prior year has now been reversed to be consistent with the current year IFRS 2 treatment of not releasing reserves to retained earnings for expired, unexercised options. There is no impact on total equity.

The errors have been corrected by restating each of the affected financial statement line items for the prior periods as  follows:

Statement of financial position (extract) as at 1 August 2018
CORRECTION OF PRIOR
PERIOD ERRORS
Figures in Rand thousand  31 July 2018  VFA  
classification  		 Timing of 
recognition
of  provision 		 Prepaid  expenses  correction  Deferred 
tax 		 Reclass- 
ifications 		 Restated 
1 August 
2018 
Retained earnings  (1 002 714) (743 779) –  –  –  –  (1 746 493)
Shares to be issued to vendors  (809 975) 743 779  –  –  –  –  (66 196)
Total equity  (5 936 822) –  –  –  –  –  (5 936 822)

Statement of financial position (extract) as at 31 July 2019
CORRECTION OF PRIOR
PERIOD ERRORS
Figures in Rand thousand  31 July 2019  VFA 
classification 		 Timing of 
recognition 
of provision 		 Prepaid 
expenses 
correction 		 Deferred 
tax 		 Reclass- 
ifications 		 Restated 
31 July 
2019 
Trade and other receivables  3 164 150  –  –  189 821  –  –  3 353 971 
Deferred taxation (liability) (389 416) –  –  –  83 499  –  (305 917)
Trade and other payables  (3 006 403) –  –  (189 821) –  (107 017) (3 303 241)
Provisions  (173 399) –  (75 096) –  –  (161 932) (410 427)
Deferred income  (268 949) –  –  –  –  268 949  – 
Net assets  1 956 697  –  (75 096) –  83 499  –  1 965 100 
Accumulated loss  3 230 192  (338 476) 75 096  –  –  111 184  3 077 996 
Other reserves  (547 914) –  –  –  (83 499) (111 184) (742 597)
Shares to be issued to vendors  (358 733) 338 476  –  –  –  –  (20 257)
Total equity  (1 956 697) –  75 096  –  (83 499) –  (1 965 100)
Statement of profit or loss and other comprehensive income (extract) for the year ended 31 July 2019
   CORRECTION OF PRIOR PERIOD ERRORS    
Figures in Rand thousand  31 July 2019  Revenue 
(principal 
versus 
agent)		 Revenue 
and costs 
recognised in  advance 		 Timing of 
recognition 
of provision 		 Re-presented  
as  
discontinued  
operations*
(note 15)		 Restated 
31 July 2019 
Continuing operations 
Revenue  11 791 070  (359 742) (64 357) –  (620 934) 10 746 037 
Cost of sales  (9 421 633) 359 742  64 357  –  18 597  (8 978 937)
Gross profit  2 369 437  –  –  –  (602 337) 1 767 100 
Net financial asset impairment losses  (606 384) –  –  –  –  (606 384)
Operating expenses  (5 136 540) –  –  (75 096) 350 876  (4 860 760)
Operating loss before interest and equity-accounted loss  (3 373 487) –  –  (75 096) (251 461) (3 700 044)
Investment income  32 329  –  –  –  (7 773) 24 556 
Share of equity-accounted loss  (9 814) –  –  –  1 860  (7 954)
Finance costs  (334 949) –  –  –  1 231  (333 718)
Loss before taxation  (3 685 921) –  –  (75 096) (256 143) (4 017 160)
Taxation  (324 141) –  –  –  115 954  (208 187)
Loss for the year from continuing operations  (4 010 062) –  –  (75 096) (140 189) (4 225 347)
Loss for the year from discontinued operations  (861 454) –  –  –  140 189  (721 265)
Loss for the year  (4 871 516) –  –  (75 096) –  (4 946 612)
Other comprehensive income  (3 451) –  –  –  –  (3 451)
Total comprehensive loss for the year  (4 874 967) –  –  (75 096) –  (4 950 063)
* Integrators of Systems Technology Proprietary Limited was classified as a discontinued operation in 2019 and has been classified as a discontinued operation in the current year as well. In 2019, however, the results were not shown in discontinued operations and was rather shown incorrectly in continuing operations. This has been corrected by restating the prior year continuing and discontinued numbers.
Figures in Rand thousand 31 July 2019 Restated
31 July 2019
(Loss)/profit attributable to:
Owners of EOH Holdings Limited (4 874 052) (4 949 147)
Non-controlling interests 2 535 2 535
Total (4 871 517) (4 946 612)
Total comprehensive (loss)/income attributable to:
Owners of EOH Holdings Limited (4 877 503) (4 952 598)
Non-controlling interests 2 535 2 535
Total (4 874 968) (4 950 063)
From continuing and discontinued operations (cents)
Loss per share (2 995) (3 041)
Diluted loss per share (2 995) (3 041)
Headline loss per share (1 681) (1 751)
Diluted headline loss per share (1 681) (1 751)
From continuing operations (cents)
Loss per share (2 464) (2 597)
Diluted loss per share (2 464) (2 597)
Headline loss per share (1 352) (1 504)
Diluted headline loss per share (1 352) (1 504)

The restatement adjustments are all non-cash adjustments and therefore do not impact cash generated before working capital changes or any other line items on the consolidated statement of cash flows.