“Show Me the Money! Cuba Gooding Jr. demanded in his Oscar winning performance in the movie, Jerry McGuire”. That line has since come to become a common saying that parallels “full disclosure”, an important accounting concept. Full disclosure in accounting imposes a requirement on management to provide all relevant information regarding the financial performance of operations. The goal of this authority includes providing an assurance that interested parties reading an accounting report for a particular period would arrive at the same conclusions. Failure to adhere to full disclosure requirement has been causes that raise eyebrows particularly in recent times. For the sake of satisfying my full disclosure curiosity, I attempted to give the 3rd Quarter report of the Liberian Petroleum Refinery Corporation (LPRC), as published in The Perspective a closer look. I also thought my comments were necessary as a way of encouragement for the new management that has began such a positive move by providing regular reports, now that the end of the fourth quarter is near.

A Few weeks ago my inbox was bombarded with the 3rdQ 2006 financial report of LPRC. I glanced at it and quickly left it, not out of disrespect but one purely due to my busy schedules. The sender however kept sending it to me until it finally caught my attention. Then I realized there were more disclosure issues than I had thought at first. The first lack of full disclosure is the absence of a statement of cash flow. The Statement of cash flows is a third financial report that provides information about the cash position and quality of liquidity of a company. The fact that LPRC had failed to provide such information does not exclude reasons that one cannot be prepared using the information provided in the 3rd Q report. While the two financial statements presented by management are important, their failure to correlate with information provided by the statement of cash flows renders the report inconclusive.

In view of the importance of this document, I chose to analyze the financial statement by attempting to derive one since management did not provide us this vital information. I soon realized the moment I started my analysis that the balance sheet was more of something else, replete with many disclosure issues left unanswered, than the report it claims to represent. My analysis revealed that LPRC did not offer all information necessary that would allow others to arrive at the same conclusions reached by them and the board of directors. It was discovered during the analysis that the cash balance reported in the amount of $1,666,105, as of 3rd Q Balance Sheet appears not to be accurate. My analysis of the reports resulted in cash overstated by about $124,716. All variances in the 3rd Q Financial Statements, along with other information provided in the write-up were taken into account in conducting my analysis. I did not consider Cost of Sales assumption that would have probably reduce net profit and the resulting cash balance. A cost of sale figure assumption, for example of $1,000,000 for a $9,000,000 sale (although not realistic) would lead to an understatement of cash by more than a million dollars, thereby leaving more room for questions. Disregarding the cost of sale assumption, however, one would think that a difference of this magnitude would suggest that the balance sheet should be out of balance. This does not appear to be the case given that the debits and credits are all tied out: $12,218,128 Debit and $12,218,128 Credit.

While it may not be necessary to restate their report in its entirety, it is obvious to point out that my analysis shows that the Balance Sheet does not correlated with the Income Statement presented by management. I am further alarmed by the fact that management could signature it as a document purporting that it represents the true and fair value of the LPRC. I find this act by management to be a very serious matter and ridiculous, to say the least.

The second lack of full disclosure is the fact that the report was made in a foreign currency. Part V. Article 19 section 1 of the act that established the central bank reads in part “The monetary unit of Liberia shall be the Liberian Dollar, divided into one hundred cents…….. Prices for all transactions in Liberia shall be indicated in Liberian dollar. The Liberian Dollar shall be the currency for all accounting, Financial Reporting [my emphasis], and official purposes in Liberia. The failure to report in the Liberian currency leaves issue of much accountability, particularly where local transactions are predominantly done in the Liberian dollars, which suffers heavy fluctuations. One would expect in the write up of the report, an explanation informing readers about conversion rates adopted during the period and any adjustments due to foreign currency transactions and conversions. The absence of clarities of this nature in the financial report, as to the justification for reporting in foreign currency, appears to make it illegal in its foreign currency status. The making of this and many other reports in foreign currency and the acceptance of such reports by authorities is a demonstration of a lack of will to stabilize the money market. This lack of will power would only tent to dampen any hope for efficient accountability since it is relatively easier for anyone to travel with foreign currency with a low likelihood of detection.

The thid lack of full disclosure is the fact that the income statement does not contain information about cost of sale to arrive at gross profit. This information is particularly useful at this time given the many concerns raised about an alleged fuel donation to the Liberia government by Nigeria. The failure to disclose cost of sales amount suggests a lot: that the year-to-date net profit of $3,427,702 is overstated in the first place. It further suggests that the fuel sale that generated the revenue under discussion does not have cost. It follows therefore that if the fuel does not have cost, then what is the source? Further more, no number in the report provides this information nor was any clue given in the write-up. The closest clue, which would tent to suggest some form of donation and that would benefit government of about $500,000, will come in the 4thQ Report (according to the 3rd Q report). This leaves us with no other options of making reasonable conclusions regarding cost of sales.

The fourth lack of full disclosure is the fact that LPRC is planning to solicit consultancy services for expansion and growth, without first making any mention of its intended goals. One should note that a consultant’s service is more successful subject only to client’s resources. Such resource included, but not limited to their technical and professional know-how. By not making a goal determination prior to seeking help could have likely effects such as: costly consultant services and the likelihood that the consultant will be telling the client things to do that the client otherwise might not be capable of achieving within the immediate term; and suggesting projects to the clients that might prove to have costly short term benefits and poor long-term return. While consultants might be helpful in many respects, their help is only as good as the client’s potential to establish his own focus.

The fifth lack of full disclosure has to do with the aspect on empowerment of local businesses. While the idea to strengthen the economy by empowering local businesses is important, the report failed to disclose the mechanism adopted to arrive at this noble gesture. This again brings doubts as to the genuineness of this program and reminders of nepotism, particularly given Liberia’s most recent past. The absence of such vital information leaves one to wonder if it is the prerogative of management to take on such a policy or is it simply adopting a policy of Liberianization established by government, and if so which one? If on the other hand, the goal here is to build Liberian Capacity by providing investment support for small business, why shouldn’t such program be made public to provide greater and equitable participation of Liberians who meet the requirement?

The sixth lack of full disclosure is the fact that the accounts receivable has grown more than 500% as of the third quarter report. It would appear that the entire net profit generated in the 3rd quarter is on credit sale that is nearly equivalent to the accounts receivable balance. If the indication here is that quarterly sales collections are effective as of the following quarter, this would appear to indicate sings of solvency. The scare however is that a slow collection, in spite of meeting revenue goals, would create liquidity and bankruptcy problems.

Let us be reminded that one essential goal of accountability is full disclosure. The element of full disclosure requirement provide an opportunity for all interested parties of accounting information to arrive at similar conclusions following a review of a particular financial statement covering a particular period. This is one reason why authorities of accounting, with Liberia been no exception, require the publication of relevant financial information such as an income statement, a balance sheet and a statement of cash flows. The provision of such statements would help investors and other parties make an informed decision about an entity’s affairs covering the period under consideration. It is therefore believed that the publication of the Third Quarter report of LPRC is a testament to this requirement.

While the absence of one of such report may not be sufficient reasons to pass judgment, their failure to interconnect and yield similar conclusions as those reached by their preparers would provide room for doubts. It therefore behooves me to state that the failure of the recent Third Quarter financial report of the LPRC to provide such reliability renders LPRC the obligation to provide further clarity essential to the tenants of full disclosure requirement.

This work was made a little complicated by the fact that opinions laying out disclosure requirements, as may be established by the Liberian Institute of Certified Public Accountant (LICPA), were not available. The analysis was therefore based on knowledge acquired in the classroom, with the University of Liberia being the greatest source of learning. Regardless of the lack of national authority however, basic accounting principles require accurate reporting of numbers, as opposed to fuzzy numbers. Such standards would also require ethical responsibilities and due integrity in preparing financial statements on the part of financial statement preparers. It is on the basis of this premise that drives my conviction that readers would treat this document in much more the same as they would treat one that is supported by the LICPA. While there is no passing of judgment at this time, I am however inclined to believe that the information used to prepare the two statements provided by LPRC were probably not similar. It is this dissimilarity that is the source of my doubt and would expect management to provide the necessary information so that all interested parties reading the financial report, would arrive at the same conclusion. Subject to the provision of such information, the 3rd Q financial report appears to be an element of departure from established norms of full disclosure requirements. In my opinion, this does not reflect the true and fair value of an entity, in this case, the LPRC.

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Note: The author, Mr. Francis K. Zazay is a University of Liberia trained accountant my profession. He earned an MBA with concentration in Corporate Finance from Clark Atlanta University in 2000. He is also a current candidate of the Master of Business Taxation of the Carlson School of Management of the University of Minnesota. The author can be contacted at fzazay@aol.com.

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