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8/31/09

New Zealand Accountancy Methods: A User's Guide

From the TMF Glow Bull Gains twitterfeed, we're brought a dialogue between PGG Wrightson (New Zealand's biggest agro supplies company) and the New Zealand Stock Exchange regulators. The problem concerns a sidebar note in the company's end of year annual financial report.

Here's the link and here's the paydirt:

NZ Farming Systems Uruguay Ltd – Annual Financial Statement

August 26, 2009

Julian Daly
NZ Farming Systems Uruguay Limited
57 Waterloo Road
Christchurch 8042

by email: jdaly@pggwrightson.co.nz

Dear Julian

NZ Farming Systems Uruguay Limited - Annual Financial Statements

We refer to the Annual Financial Statements and Audit Report (“Financial Statements”) of NZ Farming Systems Uruguay Limited (“NZS”), released today, 26 August 2009.

Note 3 to the Financial Statements, regarding depreciation, included the comment “fudge this to equal depn in FA note 11 $2391 - via no ca” (“the comment”). The comment has caused NZX, and the market, concern that the Financial Statements may not be accurate. In this regard, please respond to the following questions:

What exactly is meant by the comment and why is it included?
Please confirm that the figure included for depreciation is true and accurate in all material respects.
Please confirm that the Financial Statements of NZS give a true and fair view of the financial performance of NZS as at 30 June 2009 and its financial performance and cash flows for the year ended that date.

Please respond to this letter by 9:00am Thursday 27 August 2009. Please note that your response to this letter may be released to market.

Yours faithfully

Caroline Young
Head of Market Supervision

xxxxxxxxxxxxxx


Dear Caroline

NZ Farming Systems Uruguay Limited (NZS) – Annual Financial Statements

We refer to your letter of 26 August 2009 regarding the Financial Statements and Audit Report released on the same date for the annual period ending 30 June 2009.

We respond to the questions you have raised as follows:

1. The comment was a personal file note included in an earlier working draft of the notes to the Financial Statements. The file note was made as a prompt to reconcile a minor rounding difference between the cash-flow reconciliation note 3 and the fixed assets note 11 in respect of depreciation expense for the period. Importantly the comment was not in the Financial Statements reviewed and approved by the Board of Directors of NZS or its auditors.

While the comment was deleted from the final version of the Financial Statements tabled for approval by the Board of Directors; it was inadvertently retained in the results released to NZX, notwithstanding that the reconciliation had been completed. This was purely an administrative oversight. While the words in the comment were not well chosen, they were merely a prompt for the author of the Financial Statements to reconfirm the rounding difference expressed in an early draft of the Financial Statements where there was a minor rounding discrepancy. This reconciliation issue was resolved in the final checking of the Financial Statements against the supporting notes.

2. We confirm that the depreciation figure included in the Financial Statements is true and accurate in all material respects. Please refer to the comments in item 3 below regarding the process employed in relation to the preparation and approval of the Financial Statements.

3. We confirm that the Financial Statements give a true and fair view of the financial position of NZS as at 30 June 2009 and its financial performance and cash flows for the year ended on that date. NZS has followed a robust and thorough process in preparing the Financial Statements. This has involved preparation and verification of financials by the internal management team and Chief Financial Officer, review and approval by the NZS Audit Committee, review and approval by the Board of Directors and audit by PricewaterhouseCoopers.

While the inclusion of the comment in the Financial Statements is regrettable and disappointing given the rigorous and thorough process that has been adopted in their preparation, we would assure NZX and the market that the comment should not be a cause for concern regarding the accuracy of the Financial Statements. The file note comment was added to a working draft of the Financial Statements and was subsequently overlooked.

As soon as the issue came to our attention, steps were taken to immediately correct the oversight and re-release the corrected Financial Statements to NZX. We have also reviewed our internal processes to establish how the issue arose. It would be our preference that NZX remove the Financial Statements originally posted on NZX.

Finally, we note that NZS management team and its Board of Directors understand the importance of accuracy and integrity in their financial reporting obligations and wish to assure NZX that they take these obligations extremely seriously.

We hope that we have addressed the concerns raised in your letter and if there is any additional information that NZS can provide please do not hesitate to let us know.

We apologize for any inconvenience this may have caused.

Yours faithfully

Julian Daly
General Counsel / Company Secretary
PGG Wrightson Limited