Why Britam restated its profit two months after declaration

Britam headquarters in Nairobi. The firm on April 24, revised its net profit down to Sh2.4 billion from Sh2.8 billion. PHOTO | FILE 

By VICTOR JUMA, vjuma@ke.nationmedia.com

In Summary

• Britam restated its 2014 profit by Sh342.3 million due to an accounting error that saw the firm state its share of profit of associates, including Bramer, as Sh774.6 million for the year ended December 2014.
• This helped raise Britam’s total net profit to Sh2.8 billion for the year, according to the initial results published on March 20.
• But the investment company on April 24, revised its net profit down to Sh2.4 billion.

Investment firm Britam has said the recent downward revision of its 2014 profit by Sh342.3 million was done to reverse an erroneous accounting of its ownership of a 21.4-acre piece of land in Ngong’ in the previous year’s books.

While the land was held by a subsidiary, it was accounted for as held by an associate company.

Adjustments to the 2013 numbers were also made in relation to the cost of guarantee on the Deposit Administration product fund and deferred income tax on a life business surplus.

Britam says the restatement of its profit came after it realised that any gains arising from Bramer should not have entered its profit and loss accounts as share of profit from an associate.

Bramer Properties Limited, a fully owned Britam subsidiary, acquired the land in 2013 at a cost of Sh327.6 million.

In accounting terms, Bramer does not qualify as an associate, which is defined as an entity in which a company owns between 20 per cent and 50 per cent equity with significant influence but no control.

Based on this criteria, Britam has only two associates — mortgage lender Housing Finance and property developer Acorn Group. The accounting error saw Britam state its share of profit of associates, including Bramer, as Sh774.6 million for the year ended December 2014.

This helped raise Britam’s total net profit to Sh2.8 billion for the year, according to the initial results published on March 20.

But the investment company on April 24, revised its net profit down to Sh2.4 billion, attributing the move to the erroneous treatment of Bramer as an associate.

This had the effect of reducing the total share of associates’ profit from the previously stated Sh774.6 million to Sh259 million, a difference of Sh515.6 million.

Earnings from the minority-owned firms included revaluation gains on the Ngong’ land which Britam said had appreciated by Sh207.3 million.

“Management, while preparing financial statements of the company for the year ended December 31, 2014, realised that the beneficial ownership of the Ngong’ property previously accounted for in the books of its subsidiary Bramer Properties Limited in the year 2013 is instead held by itself,” Britam says in its latest annual report.

“Consequently, the company adjusted all comparative amounts presented in the current year’s financial statements affected by the accounting error,” the investment firm said, noting that the value of the land, including revaluation gains, has been transferred from the books of the subsidiary to its own books.

Britam’s director of marketing and corporate affairs said in a statement that the restatements resulting from the revised opinion of the firm’s auditors, Deloitte and PricewaterhouseCoopers (PwC), relate to 2014 accounts and that the annual report and financial statements reflect the final position.

The adjustments in the revised income statement only affected the item on share of profit of associates and consequently the tax paid and the net profit.