Auditors qualify opinion on accounts of firm tasked with Penang tunnel feasibility study

Auditors have had to qualify their opinion on the accounts of Astral Supreme Bhd, whose wholly owned subsidiary, Astral Supreme Construction Sdn Bhd, had entered into a joint-venture agreement with Penang tunnel consortium member Zenith PMC Sdn Bhd to carry out feasibility studies and detailed design work for certain roadworks and the Penang tunnel.

The firm also has had to explain a 154 per cent deviation between unaudited fourth quarter results for 2013 and its audited financial statements for the year ended 31 December 2013.

The auditors also said they “wish to highlight the unaudited unusual large payments amounting to RM12.84 million alleged to be made by the former Managing Director during the financial year”.

In an investigative review, Special Auditors, among other things, probed the veracity of certain payments to third parties as deposits. They found that “a payment of RM0.84 million by a subsidiary and treated as deposit purportedly to undertake feasibility study on a project could not be reasonably determined due to lack of documentation. Subsequent to the financial year end, a sum of RM0.60 million was refunded by the third parties and the balance will be impaired notwithstanding ongoing efforts are being made to recover the balance”.

Which feasibility study is this and who are the “third parties”?

In August 2013, Astral Supreme Bhd entered into a joint venture agreement with Zenith PMC Sdn Bhd to carry out the feasibilty study and detailed design work on certain roadwork and the Penang tunnel for an aggregate contract sum of RM275m. Astral Supreme stands to receive a minimum of RM15m and keep 25 per cent of profits with the balance 75 per cent going to Zenith.

It is unusual for auditors to qualify their opinion on the financial statements of a listed firm.

Astral Supreme Bhd’s announcement of the qualification in its auditors’ report is as follows:

In accordance with Paragraph 9.19 (37) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, the Board of Directors wishes to inform that the Auditors’ Report on the Audited Financial Statements of the Company for the financial year ended 31 December 2013 contains a qualified opinion by the External Auditors, Messrs Morison Anuarul Azizan Chew. Details of the qualification are as follows:

“Emphasis of Matter

We draw your attention to Note 42 to the financial statements. The Group had reversed revenue amounting to approximately RM4.88 million during the current financial year due to certain unusual sales.

We also wish to highlight the unaudited unusual large payments amounting to RM12.84 million alleged to be made by the former Managing Director during the financial year.

Basis of Qualified Opinion

As disclosed in Note 5 and 9 to the financial statements, the Group has entered into a sales contract in the previous financial year amounting to RM41.08 million. The contract was subsequently terminated by the customer during the current financial year. Pursuant to the sales contract, property, plant and equipment and inventory were acquired with carrying amount of RM2.73 million and RM2.41 million respectively as at 31 December 2013. In view of the uncertainty over the continued usage of the property, plant and equipment and the subsequent sales of the inventories, we were unable to obtain sufficient evidence to ascertain the recoverability of the property, plant and machinery and inventory as at 31 December 2013.

Qualified Opinion

In our opinion, except for the effects of the matters referred to in the Basis of Qualified Opinion paragraph, the financial statements give a true and fair view of the financial position of the Group and of the Company as of 31 December 2013 and of its financial performance and cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.”

The firm also had to explain the deviation in its unaudited fourth quarter results and its audited financial statements as follows:

1. INTRODUCTION

The Board of Directors of Astral Supreme Berhad (‘ASupreme’ or ‘the Company’) wishes to announce that the Company has on 28 February 2014, submitted its unaudited 4th quarter results to Bursa Malaysia Securities Berhad (‘Bursa Securities’).

2. DEVIATION BETWEEN UNAUDITED RESULTS AND THE AUDITED RESULTS

In compliance with Paragraph 9.19(35) of the Main Market Listing Requirements of Bursa Securities, the Board wishes to inform that there is a deviation of about 154% between the Group’s loss after tax and minority interest as stated in the unaudited 4th quarter results ended 31 December 2013 (‘QR for 4Q 2013’) announced on 28 February 2014 and Audited Financial Statements for the financial year ended 31 December 2013 (‘AFS 2013’). The deviation is reconciled and explained as below:–

	AFS 2013 (“RM’000”)	QR 4Q 2013 announced on 28 February 2014 (“RM’000”)	Variance (“RM’000”)
(Loss)/Profit after tax and minority interest for the year	(10,081)	(25,584)	(15,503)

The major causes of the variances between the announced unaudited results and the audited results

The major causes of the variances between the announced unaudited results and the audited results are due to the adjustments made on the exceptional items of possible irregularities pursuant to the Investigative Audit conducted by PKF Advisory Sdn Bhd, adjustments and reclassification of cost of sales and others items by External Auditor as follows:-

Items	RM’000
Adjustment to reversal of sales	4,822
Impairment of amount owing by associate company	9,488
Impairment of deposits	453
Reversal of impairment in trade receivables	(1,650)
Impaired of trade receivables	1,056
Impairment in advance to creditors	1,427
Selling marketing	(93)
	———–
Total	15,503
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