Shares in CIMIC Group have crashed after a Hong Kong research firm issued a scathing report accusing Australia's largest construction company of inflating profits by $1 billion over two years.
"CIMIC has reported robust earnings growth in recent years ... however, this growth is an illusion," said the note by GMT Research.
"We estimate CIMIC has inflated reported pre-tax profit by roughly 100 per cent over the past two years, or $A1bn in total, through a combination of aggressive revenue recognition, acquisition accounting and avoiding losses from its Middle Eastern JV".
The note was published last Tuesday but attracted little attention until it was publicised by the Sydney Morning Herald on Saturday.
CIMIC shares closed down $3.54, or 7.07 per cent, to $46.50, a two-month low.
The firm was the biggest decliner on the ASX200.
GMT's Nigel Stevenson charged that CIMIC mostly used aggressive revenue recognition to boost pre-tax profits by $300 million to $400 million over the past two years.
New accounting rules that came into force in 2018 resulted in a $700 million reversal in previously booked revenue no longer deemed "highly profitable," GMT charged.
The research firm produced a video arguing the points.
GMT describes itself as "an accounting research firm" that uses a proprietary method to "detect financial anomalies, or traits similar to past accounting shenanigans".
CIMIC said in statement to the ASX that it was in compliance with its disclosure obligations.
"For accurate information and analysis related to the company, CIMIC advices market participants to refer to its 2018 and past annual reports, its quarterly, half and full year financial results, and its other disclosures," it said.
"CIMIC notes that its annual reports and full year financial result are fully audited and in compliance with the accounting standards."
CIMIC's first-quarter result was released three weeks ago.
More than 70 per cent of the Sydney-based company's shares are owned by Hochtief, a German construction company that is in turn majority owned by Spanish construction firm ACS.
It was known as Leighton Holdings until 2015.
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