The accounts of Harvey Norman Holdings Limited (ASX: HVN) are being reviewed by the corporate regulator, but the retailer was defiant in stating that does not amount to an actual investigation.
What's happened?
On Monday, the ASX asked Harvey Norman to respond to a price query after its shares were slammed, ultimately losing 8.2% for that session. It also asked it to specifically comment on an article published by The Australian Financial Review which had earlier stated that "The Australian Securities and Investments Commission is reported to be reviewing how Harvey Norman reports its exposure to franchisee losses and $1.15 billion in sometimes troubled franchisee loans."
In response, Harvey Norman stated that the AFR article had made false statements and assumptions, which helped to bolster Harvey Norman's share price temporarily.
However, the speculation continued to grow as the week has progressed. After the market closed on Thursday, Harvey Norman stated that (emphasis added):
"ASIC contacted HVN and requested that HVN make a clarifying statement to the ASX in connection with its response to the ASX price query on 20 March. HVN discloses that ASIC is undertaking a routine review of HVN's financial report for the financial year ended 30 June 2016 as part of its financial reporting surveillance program."
The retailer also said that it remains of the view that its financial report for the year ended 30 June 2016, as well as the financial report for the half-year ended 31 December 2016, are in accordance with the law.
Shortly after, a headline from The AFR read "Harvey Norman admits ASIC is investigating its accounts" while another from The Sydney Morning Herald noted "Harvey Norman … admitted its accounts were under investigation by the corporate watchdog", according to Harvey Norman. Harvey Norman quickly fired back that "Each of the statements is false. ASIC is not investigating the accounts of Harvey Norman", and advised interested parties to contact ASIC's Media Unit for confirmation.
What happens now?
Although Harvey Norman has taken a defiant stance against the comments being made by the mainstream financial media, investors are clearly on edge. The HVN share price has declined 8.4% since the beginning of the week, compared to a 1.9% decline for rival JB Hi-Fi Limited (ASX: JBH), and have shed 15.2% since their high point on 13 March – just 11 days ago.
Although a 'routine review' doesn't necessarily amount to an investigation, investors erring on the side of caution may prefer to wait on the sidelines until the situation becomes clearer. Any further bad news could certainly cause further declines in the Harvey Norman share price.
