This is also how CPA Gottlieb replied in his interrogation (Transcript, p. 948, paras. 6-9):
"Q: Do you agree with me that the accounting conditions that allow the special payments to be offset in the company's liabilities have not been met?
A: I agree. There was also a reclassification, although you know, I can understand the logic. "
- Aspects accompanying the issue of offset are the proper presentation and disclosure. Even if it were found that a certain offset is permitted, the regulation requires transparency. IAS 1 requires disclosure of material accounting policies and transparency regarding any exceptional or material item in the reports. In Agrexco's case, recognizing an asset without a contractual right and offsetting it off the balance sheet is, at the very least, a "bold" policy. Therefore, it would have been appropriate to detail in the annotations of the reports the nature of these items, the accounting policy in respect of them, and their impact on the reports. This is also evident from the 2012 Eden Opinion (ibid., in paragraphs 15.2 and 15.3):
"15.2 To the best of my understanding, it would have been appropriate to include in the commentary on the Company's accounting policy an explanation of the manner in which the Company took the accounting treatment of advances to suppliers in order to ensure the continued supply of produce. The need for this disclosure is also strengthened in light of the fact that the Company included in the commentary on its accounting policy an explanation regarding the advances paid to suppliers on account of inventory (which were included in the Other Debtors section).
15.3 I am of the opinion that the Company should have presented the amount of advances to suppliers that were paid to ensure the continued supply of the products as an asset in the Company's current assets (while providing detailed disclosure thereof in the Balance Sheet Statement), and not deducting from the undertaking clauses to the suppliers (without any disclosure). I find support for this argument in the fact that in the financial statements for 2010, the company reclassified the amount of advances to suppliers paid in 2009 and which was offset in the "original" statements for 2009, to the "other debtors" section."
- In practice, however, no satisfactory explanation has been given on this issue. While the same financial statements included a clear and detailed explanation of standard advances on account of inventory, i.e., regular payments to growers deducted from the consideration upon the supply of produce, the policy regarding the special payments was not adequately described. The auditors did not demand that the annotations include disclosure that the company recognizes these payments as an asset and that such significant sums were offset against liabilities. The defendant's witness, CPA Gottlieb, stated as follows (transcript, p. 922, questions 15-21; p. 924, questions 1-6):
Q: Also in the 2007 report audited by a public accountant, or EY,. There is no statement that implies that the special payments are recognized as an asset.