Running the ruler over a listed entity's accounts is a stressful job at the best of times for an auditor. I should imagine it would be 10 times worse for the person auditing Slater & Gordon Limited's (ASX: SGH) accounts right now.
Slater & Gordon is the embattled legal eagle that has come under intense scrutiny in recent months following the announcement of two separate investigations into its accounts.
The first was announced by the UK's Financial Conduct Authority into the activities of Quindell Plc, from which Slater & Gordon recently purchased its Professional Services Division (now known as Slater Gordon Solutions). The second was announced shortly after by the Australian Securities and Investments Commission (ASIC) which has been looking into the company's relationship with accounting partner Pitcher Partners.
Investors will finally be able to lay some of their concerns regarding these investigations to rest in the very near future. According to the Fairfax press, the company has confirmed that it will report its audited full-year results to the market by Wednesday, September 30, in which the auditor will surely leave no stones unturned before signing off on the accounts.
Indeed, Slater & Gordon's share price soared as much as 20.7% on 28 August after the company released its unaudited full-year results, before ending the day just 5.8% higher at $3.12.
It seems investors warmed to the company's decision to change a number of its accounting policies which were the result of ASIC's investigation. One of these included the decision to reclassify certain balance sheet items, including "Work in Progress" items, which had been particularly scrutinised by investors and analysts. This decision also gained recognition from ASIC which may have contributed to the market's initial excitement.
Since then however, the shares have retreated to $2.63 – down 15.7% since that date and 57% since the scandal broke in June this year – suggesting that investors are no longer as confident in what the results will show.
Investors will also search through the document for any updates regarding ASIC's investigation. Although the regulatory body had not found any further errors as at the most recent announcement from the company, it does not mean no new errors will have been unearthed.
This ongoing investigation is likely one of the biggest factors contributing to the stock's heavily shorted position, which is in turn acting as a heavy drag on the company's share price performance.
Should you buy?
Although its shares are currently trading on a price-earnings ratio of just 7.5 times, Slater & Gordon is still a risky bet. While its shares could soar if the investigation clears any alleged wrong-doings, they could also fall even further if issues are found in the company's accounts. Rather than speculating, investors would be wise to remain on the sidelines until we're provided with further clarity regarding Slater & Gordon's situation.
