FMA Concludes Inquiries Into Fonterra’s 2019 Financial Statements And Complaints Relating To Valuations Of Beingmate And
The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko - has closed its inquiries that followed Fonterra’s 2019
financial statements market announcement. The FMA did not find evidence to support regulatory action, including
litigation, under the Financial Markets Conduct Act.
The FMA’s inquiries followed complaints about the timing of the accounting write-downs relating to Beingmate Baby and
Child Food Co Limited (Beingmate) and China Farm assets (China Farms). The values of these, and other, assets were
re-stated in a Fonterra market announcement in August 2019.
Prior to these inquiries, the FMA had also reviewed the valuation of Beingmate in Fonterra’s 2017 financial statements
and China Farms in its 2018 financial statements.
In the context of these various inquiries, the FMA has spent considerable time seeking to assess the reasonableness and
supportability of forecasts used, and assumptions applied, in valuing parts of Fonterra’s business and related
disclosures.Findings regarding the valuation of Beingmate
From September 2017 to April 2018, the FMA engaged with Fonterra on its valuation of Beingmate for the year ended 31
July 2017. The engagement focused primarily on the base share price and the premium applied in the valuation of this
Fonterra wrote down the Beingmate investment by $405 million in its half year financial statements for the period ended
31 January 2018, and enhanced its disclosures relating to the key inputs and assumptions, including the sensitivity of
the value of the investment to changes in key assumptions.Findings regarding the valuation of China Farms
The FMA engaged with Fonterra regarding its valuation of China Farms prior to the release of Fonterra’s 2018 financial
statements. As part of this engagement, the FMA reviewed the calculations and assumptions used by Fonterra management in
the valuation of these assets.
During this engagement, Fonterra enhanced its relevant disclosures on key assumptions, and sensitivities to changes in
key assumptions, applied in the valuation of China Farms.
The FMA acknowledges the duration of these inquiries, while also highlighting the complexity and technical nature of any
inquiry where significant judgements and assumptions are used in determining valuations. Both the quantity and
sufficiency of accounting records provided by entities in complex areas such as valuations and impairment of assets has
an impact on the FMA process.Further guidance on financial statements
The valuation of non-financial assets, including goodwill, continues to be an important area of focus in the FMA’s
financial reporting monitoring activities. This includes a focus on the requirement to keep, and be able to make
promptly available, proper accounting records to ensure compliance with applicable accounting standards.Significant judgements and critical accounting estimates
Appropriate consideration of areas of significant judgements and accounting estimates is important because of the
potential impact on the financial position and results of a reporting entity. In 2018 the FMA issued an Information sheet
which highlights that FMC reporting entities should ensure adequate levels of disclosures regarding significant
accounting estimates and judgements, and relevant sensitivities to changes in key assumptions.
The FMA reminds directors that they are primarily responsible for ensuring that reporting entities prepare quality
financial statements and information on a timely basis.