Ernst & Young (E&Y) said today in Maputo that it is not its responsibility to issue a public statement on the financial scandals of Mozambique Airlines (LAM), as its former auditor.

"Ernst&Young is bound by duties of secrecy and confidentiality towards its clients, so we have nothing to comment on. The responsibility for the financial statements lies with the entity's management body," said Paulo Reis, E&Y partner in charge of the Insurance and Audit Department and the Mozambique Office.

He explained, however, that this position should not mean covering up LAM's embarrassing issues, as this is already established conduct for the auditing exercise.

"These are professional obligations, the professional secrecy of the information we access in any audit, and the confidentiality we are obliged to maintain with our clients," he said.

According to Reis, E&Y has not maintained relations with LAM since 2021, when it stopped auditing the company's accounts.

"Since then, due to Mozambican law, which stipulates that, after a certain period, the auditor must rotate, we have ceased to be LAM's auditors," he said.

Asked whether Ernst&Young had detected any financial irregularities in the company during the period, he said he had no statements to make, especially on issues that were triggered when there was no longer any contact between the entities.

"Frankly, E&Y has had no contact with LAM since it ceased to be the auditor, so I don't have much comment to make on that," he said.

Paulo Reis was speaking on the sidelines of a Coffee Break on the need for Mozambican companies to adopt practices in their management system that are aligned with the three pillars of sustainability, namely Environment, Social and Governance (ESG).

E&Y's position follows the revelation of LAM's deviant practices detected by Fly Modern Arkthe company hired by the government to readjust the company.

Ernst&Young's readings of LAM's accounts as auditor

It's true that LAM's financial scandals began to come to light with greater force between 2022/23 - there was even talk of privatizing LAM - but that doesn't necessarily mean that they were committed during those years. This is what, in the opinion of the public, legitimizes the need for E&Y to publicly clarify what happened in LAM's accounts. Or did it not detect the occurrence of, for example, over-invoicing and "ghost" invoices?

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As auditor of LAM's accounts, E&Y analyzed the financial years from December 31, 2017 to December 31, 2021.

In the Report and Accounts (RC) of December 31, 2017, published on June 14, 2018, E&Y said that the company had negative equity of more than three and a half billion meticais, resulting from accumulated losses of more than nine billion meticais, with current liabilities exceeding current assets by more than six and a half billion meticais, and that the continuity of its operations was subject to the injection of capital, whether from shareholders, banks or profitable future operations.

On July 29, 2019, the above observations were maintained for the CR of December 31, 2018. Negative equity was 7,871,737,483 meticais, resulting from accumulated losses of 12,020,019,670 meticais, and current liabilities exceeded current assets by 8,116,759,948 meticais.

In the CR published on July 28, 2020, on the financial statements for December 31, 2019, LAM once again showed negative equity and current liabilities exceeding current assets. In the document, the auditor complained that he had not obtained sufficient evidence to allow him to make certain conclusions. Once again, LAM's ability to continue as a going concern was called into question.

On October 13, 2021, E&Y published the CR for December 31, 2020, in which it again referred to the paucity of evidence to issue conclusions, and uncertainties about the continuity of LAM's operations, being dependent on the capital injection.

And finally, in the CR for the financial year ending December 31, 2021, published on November 15, 2022, the auditor maintained his perception of the uncertainties regarding the continuity of LAM's operations, which is therefore dependent on a capital injection.

Curiously, from the year in which E&Y reports the weakness in obtaining evidence on the accounts, the CRs do not reveal, as usual, the amounts of negative equity, accumulated losses, and current liabilities greater than current assets.

In addition to the CRs highlighted here, the LAM portal contains the 2012 CR, while the 2013, 2014, 2015 and 2016 CRs are missing. A work by Misa detected this gap.