Auditors wary of microfinancier's survival after Sh592m loss

Real People Chief Executive Daniel Ohonde and former Nairobi County Trade Executive Ann Othoro during the opening of the firm's regional headquarters in Nairobi in October 2014. [File, Standard]

The future of non-deposit-taking financial solutions provider Real People Kenya Ltd hangs by a thread after its full-year loss widened more than six-fold.

Deloitte auditors said the firm, which started its operations in Kenya in 2006, faces an uncertain future, with its survival now hinging on its anticipated tax refund of Sh177.1 million from the Kenya Revenue Authority (KRA).

According to the financial results for the year ended March 31, 2017, the firm sank into a loss of Sh591.7 million, which is more than six times worse than the Sh93.7 million loss posted in a similar period last year. “The loss was attributable to a deteriorating operating environment, resulting in higher impairments,” said the company, whose loan impairments rose by 82 per cent to Sh910 million. A loan is considered impaired when it is unlikely that the lender will collect the full value of the loan because the creditworthiness of a borrower has fallen.

The company had recognised the potential tax refund as an asset, but Deloitte says since the claim has not yet been filed so that it can be subjected to an audit by KRA, the treatment is premature.

Real People will be required to prove to the taxman that all avenues in achieving payment of the loan have been exhausted and that the account is indeed a bad debt for it to qualify for a refund.

“The balance does not, therefore, meet the definition of an asset as it is dependent on assessment by the KRA and the determination of this is not wholly within the control of the company,” says the auditor. On this ground and there being no clear plan on capital raising, the auditor has issued a disclaimer, saying it is incorrect for the company directors to recognise anticipated tax refund as an asset.

“These conditions combined with the historical performance of the company indicate that a material uncertainty exists, which may cast significant doubt on the company’s ability to continue as a going concern,” says Deloitte.

In international financial reporting standards, a going concern means that a firm prepares books with expectation that it will continue being in business for the foreseeable future.