water wheel holdings
The Case of Water Wheel Holdings: A Slippery Tale
Water Wheel Holdings Ltd (Holdings) was a successful company listed on the Australia Stock Exchange (ASX). It wholly owned and operated a trading entity called Water Wheel Flour Mills Pty Ltd (Mills)1 from whom business was primarily conducted. Mills was a 127-year-old company that functioned as a commodities and stock feed mill, operating out of the town of Bridgewater, north-west of Bendigo. Despite rising from humble begins and being a prosperous company for many years, the group ultimately ran into significant trouble –resulting in the halting of trading on the ASX, the appointment of Administrators to consider the group’s financial affairs, a successful action being brought about by the regulators against the executive and non-executive directors for insolvent trading, and many other serious consequences. The following is an extract from paper2 which outlines events which lead previously mentioned problems:
“In 1997 Mills entered the rice industry with a $7 million purchase of capital equipment. Water Wheel purchased large quantities of wheat and paddy rice. To finance this Mills entered an “off-balance sheet” arrangement with financiers. In December 1998 the group’s accountants and auditors, Hall, Puddy and Wales (HPW), carried out an audit for the financial year ending 3 December 1998. The auditors noted a trial balance as at 31 October 1998 prepared by management. This suggested a profit of $1 million but HPW believed this was due to major oversights in the recording of wheat and rice costs. By February 1999, HPW stated the result for the year ending 3 December 1998 was likely to be a loss of $1.5 million. The directors refused to believe this and blamed the accountants for not invoicing sales of up to $1.8 million. The directors said a new computer system was the problem, although they were unable to prove it. The directors then sought another opinion by engaging the accounting firm of Deloitte Touche
Water Wheel Holdings Ltd (Holdings) was a successful company listed on the Australia Stock Exchange (ASX). It wholly owned and operated a trading entity called Water Wheel Flour Mills Pty Ltd (Mills)1 from whom business was primarily conducted. Mills was a 127-year-old company that functioned as a commodities and stock feed mill, operating out of the town of Bridgewater, north-west of Bendigo. Despite rising from humble begins and being a prosperous company for many years, the group ultimately ran into significant trouble –resulting in the halting of trading on the ASX, the appointment of Administrators to consider the group’s financial affairs, a successful action being brought about by the regulators against the executive and non-executive directors for insolvent trading, and many other serious consequences. The following is an extract from paper2 which outlines events which lead previously mentioned problems:
“In 1997 Mills entered the rice industry with a $7 million purchase of capital equipment. Water Wheel purchased large quantities of wheat and paddy rice. To finance this Mills entered an “off-balance sheet” arrangement with financiers. In December 1998 the group’s accountants and auditors, Hall, Puddy and Wales (HPW), carried out an audit for the financial year ending 3 December 1998. The auditors noted a trial balance as at 31 October 1998 prepared by management. This suggested a profit of $1 million but HPW believed this was due to major oversights in the recording of wheat and rice costs. By February 1999, HPW stated the result for the year ending 3 December 1998 was likely to be a loss of $1.5 million. The directors refused to believe this and blamed the accountants for not invoicing sales of up to $1.8 million. The directors said a new computer system was the problem, although they were unable to prove it. The directors then sought another opinion by engaging the accounting firm of Deloitte Touche