Auditor upholds reservation on Associação Mutualista’s financial results

  • ECO News
  • 4 April 2022

At issue are deferred tax assets amounting to almost €890 million that PwC considers to be overvalued "by a materially relevant amount".

Associação Mutualista Montepio Geral (AMMG) and the external auditor are still at loggerheads over so-called tax credits, which totalled €886.8 million at the end of last year. PwC maintains its opinion that deferred tax assets are overstated “by a materially relevant amount”, even though the institution has tried to demonstrate that they have been properly accounted for. The auditor also leaves a warning about the impact of the war on the recovery of investment in the bank.

“The entity does not show the capacity to generate sufficient taxable income to recover a substantial part of the deferred tax assets recorded,” signals the auditor Carlos Maia in the reservation he placed in the legal certification of accounts that appears in the individual report for 2021.

“Thus, in our opinion, the deferred tax assets, equity and net profit for the year, included in the balance sheet and income statement of the entity on December 31, 2021 and December 31, 2020, are overstated by a materially relevant amount, the magnitude of which we cannot quantify, given the uncertainty inherent in the projections of taxable income,” he further justifies.

Since 2020, AMMG and PwC have maintained this divergence in relation to the tax credits created in 2017, still during the time of Tomás Correia. The internal opposition criticised this operation as it was considered a tax and accounting trick to hide the imbalance between the institution’s assets and liabilities.

To resolve this dispute, a working group was set up that included external specialists, leaders of Montepio itself, including chairman Virgílio Lima, and also the former auditor KPMG and BDO. This group has already produced its conclusions, considering that PwC is interpreting international accounting standards “to the letter” and interpreting them “blindly” and is not making a correct assessment of the issue. However, PwC maintained its opinion in relation to this matter.

In assessing PwC’s reservation on last year’s accounts, the AMMG supervisory board made a point of expressing “its disagreement with the content of the reservation and, consequently, with the material uncertainty related to the going concern assumption.”

Besides deferred tax assets, there is another issue separating Mutualista and auditor: the bank’s valuation on AMMG’s balance sheet. The mutual association’s investment in Banco Montepio is valued at €1.5 billion, representing 40% of total assets. An impairment loss of €875.5 million is associated with this investment. PwC maintains its emphasis on the bank’s valuation, as it considers that it is also overvalued. In addition, it leaves a warning: the “recent developments of the war in Ukraine” could make it difficult to recover investments in the bank.

AMMG recorded profits of €44.6 million last year, mainly on the back of increased revenues from members. It compares with losses of €17.9 million and €408.8 million in 2020 and 2019, which prompted chairman Virgílio Lima – just elected in December in an uncontested manner – to talk of a “turning of the page”. The accounts were approved by the newly elected assembly of representatives last week.