For years, Steinhoff did deals with companies that were secretly linked to Jooste and his

cronies. Steinhoff did many transactions with companies that were supposed to be
independent third parties but secretly had strong links to Jooste. These deals made
Steinhoff look much more valuable and profitable than it really was.
Many of the deals involved companies buying things from Steinhoff, like trademarks. The
prices of these deals may have been inflated, and on top of that, Steinhoff gave these
companies massive loans to buy their own assets.
Steinhoff listed undertakings from these companies that it would pay back these debts as
so-called “cash equivalents” on its books, which made it look like a much bigger company
than it really was.
Its financial statements featured elaborate tricks to show what these cash equivalents were
supposedly worth, the PwC report says.
These fake loans would also be moved between different Steinhoff units and other
“companies. And often when they were moved around, they were magically reclassified as
something else, which would further artificially pump up Steinhoff’s value.
Critically review this extract taken from Source: https://www.businessinsider.co.za/new-
steinhoff-report-2019-3

Introduction

The provided extract reveals a series of deceptive practices involving Steinhoff and
companies linked to its former CEO, Markus Jooste. These transactions, masked as
independent dealings, artificially inflated Steinhoff's financial position, leading to significant
misrepresentation of its value and profitability. This critical review dissects these practices
and their implications.

Manipulation of Independent Third Parties

Steinhoff's transactions with entities claimed to be independent third parties, but in reality,
linked to Jooste, is a blatant conflict of interest. This manipulation allowed Steinhoff to
present a front of legitimate business dealings, thereby misguiding investors and
stakeholders. The intentional misrepresentation breaches ethical standards and corporate
governance principles, undermining trust in the company's reported financial health.

Inflated Deal Prices and Dubious Loans

The extract mentions inflated prices for transactions, particularly involving the sale of
trademarks. These artificially high prices, coupled with massive loans from Steinhoff to
these supposedly independent companies, created an illusion of robust revenue streams
and asset values. These loans, intended for the purchase of Steinhoff's assets, indicate a
circular flow of funds designed to enhance the company's balance sheet artificially.

Misrepresentation as Cash Equivalents

Listing undertakings from these companies as "cash equivalents" on Steinhoff's books is a
sophisticated form of financial engineering. Cash equivalents are typically liquid assets,
easily convertible to cash. By classifying doubtful undertakings as cash equivalents,
Steinhoff misrepresented its liquidity position, misleading investors about the company's
true financial health.

Elaborate Financial Tricks

According to the PwC report, Steinhoff employed complex schemes to justify the valuation
of these so-called cash equivalents. These elaborate tricks involved shifting fake loans
between different Steinhoff units and reclassifying them to further distort the company's
financial statements. Such practices are indicative of deep-rooted financial manipulation
aimed at sustaining an inflated company valuation.

Implications of Financial Misrepresentation

The implications of these deceptive practices are extensive. Investors rely on accurate
financial statements to make informed decisions. Steinhoff's fraudulent representation led to
misplaced investor confidence and substantial financial losses when the true state of affairs
came to light. Moreover, this case underlines the need for stringent regulatory oversight and
robust corporate governance mechanisms to prevent similar incidences.

Conclusion

The extract from Business Insider paints a troubling picture of Steinhoff's dealings under
Jooste's leadership. The manipulation of transactions, misrepresentation of financial data,
and elaborate financial tricks used to inflate the company's value highlight severe ethical
breaches and a disregard for corporate integrity. This case serves as a stark reminder of the
critical importance of transparency, accountability, and ethical conduct in corporate
governance to maintain trust and confidence in financial markets.