![Gerry Harvey escalated his claims of a "potential scam" to hurt Harvey Norman by short sellers whom he described as ...](/content/dam/images/g/v/2/c/i/s/image.related.afrArticleLead.620x350.gv4y2o.png/1490260668447.jpg)
Retail group Harvey Norman has confirmed that the Australian Securities and Investments Commission is investigating its 2016 accounts, after a dramatic intervention by the regulator on Wednesday evening.
Harvey Norman finance director Chris Mentis had issued a statement to the ASX on Tuesday denying a report by AFR Weekend which said ASIC was investigating. Mr Mentis said the Financial Review report contained "false statements and assumptions".
Harvey Norman chairman Gerry Harvey said the Financial Review report, together with earlier reports was part of a conspiracy by short sellers, together with Australian fund managers and "media allies". Mr Harvey has continued to trade in Harvey Norman stock, buying 2 million shares on Monday for more than $8 million and anotherĀ 1 million shares on Thursday.
But Harvey Norman was forced to make a humiliating backdown after direct action by ASIC.
![How The Australian Financial Review broke the story](/content/dam/images/g/v/5/7/x/7/image.imgtype.afrArticleInline.620x0.png/1490260569107.png)
In a statement issued after the close of trade on Thursday, Harvey Norman said that ASIC had contacted the company on Wednesday and requested that it make a clarification to its ASX statement on Tuesday.
"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 company said.
"It remains the view of the Company that the financial report of HVN for the year ended 30 June 2016 and the financial report for the half year ended 31 December 2016, each lodged with ASIC and ASX, are in accordance with the law."
Raises concerns
Harvey Norman directors including managing director Katie Page have sold Harvey Norman shares worth $2.6 million in the last week, at a time when the market had not been told of the ASIC review.
ASIC declined to comment on Harvey Norman's description of a "routine review". However, its guidelines say that when it conducts routine reviews of company accounts the company is not aware of the process. It is only when it escalates the review, as it has done with Harvey Norman, that ASIC raises concerns directly with the company and asks for a response.
It is understood ASIC launched an inquiry in the aftermath of the Harvey Norman annual meeting in November, after governance group Ownership Matters released a report urging fund managers to vote against the accounts because of a lack of transparency, and questioned whether franchises which are closely controlled by the group should be consolidated.
In December, ASIC Commissioner John Price said the regulator was focusing on asset values and accounting policy choices.
"ASIC continues to see companies use unrealistic assumptions in testing the value of assets or that have applied inappropriate approaches in areas such as revenue recognition," Mr Price said.
List of questions
It's believed ASIC has issued an extensive list of questions to Harvey Norman about how it accounts for loans to franchisees, where it counts franchisee fees as profit when it loans the franchises funds to pay the fees, and even to pay interest on these loans.
The ASX had queried the 8 per cent fall in the Harvey Norman share price on Monday, when it fell to $4.36, and asked if the market was fully informed given the Financial Review report of an ASIC investigation. The company dismissed the report as false and said the market was fully informed.
ASIC's intervention on Wednesday evening came as Mr Harvey escalated his claims of a "potential scam" to hurt Harvey Norman by short sellers whom he described as "criminals".
While ASIC's concern is believed to have been that the market should be informed of the investigation, Harvey Norman released its statement only after the close of trading on Thursday, with the stock closing down at $4.35 after another day of heavy turnover.