Interview with Peter Ryan

24 September 

Subjects: CPA Australia’s Audit Report

CHRIS UHLMANN: A report out today on the health of Australia's listed companies says nearly a third are confronting the risk of financial catastrophe.

Analysis of 16,000 annual reports by the professional accounting body CPA Australia shows there are more alarm bells ringing now than during the depths of the global financial crisis.

The research says companies in jeopardy are exposed to the end of the mining investment boom coupled with fears about a hard economic landing in China.

CPA Australia's chief executive Alex Malley is speaking with our business editor Peter Ryan.

ALEX MALLEY: It's a pretty profound piece of research because it's telling us that 32 per cent of ASX-listed companies are reporting going concern warnings, meaning significant uncertainty. And when you factor that into a fragile economy, I think more and more we need to discuss, you know, Australia's position right now. 

PETER RYAN: You make the conclusion that a potential catastrophe confronts these companies based on the going concerns you've mentioned or alarm bells detected by auditors. What are some of the big warning signs that auditors have been picking up?

ALEX MALLEY: There may be material issues like negative cash flow, net liability positions, lack of access to capital, repayment issues. So it's telling us that a lot of companies have a significantly uncertain future and if there's a shock right now, an economic shock, the Government doesn't have money to throw at the economy, nor do we seem to have a solid certainty amongst our ASX-listed companies. 

PETER RYAN: If companies are getting these alerts from auditors, why aren't they going to the root of the problem? Is this more about complacency that the good times will just keep rolling?

ALEX MALLEY: We've had about 40 per cent of the energy and mining sector over recent times indicating this sort of warning. That's not totally surprising because it's speculative. But all industries around consumer, industrials, healthcare, utilities are all showing systemic rises in this issue. 

So I think the good thing about this research is that it starts to confront some realities that perhaps Australian governments of both persuasions have been deferring to perhaps another electoral period. We've got to be far more serious about Australia's future. 

PETER RYAN: But are you concerned that there are more companies potentially at risk than at the depths of the global financial crisis back in 2009? And some of these warnings aren't exactly new, are they?

ALEX MALLEY: Well, that's a significant point that comes out of the research. Some 22 per cent post-global crisis were actually reporting these sorts of warnings. Today it's 32 per cent. 

Now a lot of mums and dads are investing and I think that mums and dads, governments, businesses need to stop relying on some of our great history as an economy, not to presume speculative investment is the way to go. 

PETER RYAN: And there is a pretty big shift going on at the moment, particularly as we see more evidence that China's economic slowdown is taking hold and for example the price of iron ore is down at a five year low. Now if this goes from a correction to a global shock, how would these Australian companies cope?

ALEX MALLEY: If that were to happen, and we all hope it doesn't, fundamentally nothing about their future is already looking significantly certain, let alone if there was a major shock. 

But, you know, it is a sobering call. And we talk about, you know, the lucky country and we talk about our proximity geographically to Asia but we have to make a decision whether this is going to be the Australasian century or the Asian century. 

And if you do look at these statistics, around 58 per cent in the bottom 500 of the ASX, it's telling us that we're sort of on a wing and a prayer believing that speculative investment is going to see us through because China is always going to be there. And we have to confront those issues and realise that if we're going to maintain or improve our living standards, we perhaps may need to go backwards for a little while to be able to go forwards for the longer term. 

CHRIS UHLMANN: The chief executive of CPA Australia Alex Malley with our business editor Peter Ryan. 

And there'll be a longer version of that interview on the AM web site later this morning.