Sample Disclosure – Auditors’ Report With Disclaimer Opinion (15 December 2010)
ABC SDN. BHD.
(Incorporated in Malaysia)
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ABC SDN. BHD.
Report on the Financial Statements
We have audited the financial statements of ABC SDN. BHD., which comprise the balance sheets as at 30 September 2010 of the Group and of the Company, and the income statements, statements of changes in equity and cash flow statements of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages X to XX.
Directors’ Responsibility for the Financial Statements
The directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with Financial Reporting Standards and the Companies Act 1965 in Malaysia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.
Basis for Disclaimer of Opinion
1. Effect of unresolved matters resulted in disclaimer of opinion expressed by the previous year’s auditors
The financial statements of the Group and of the Company for the previous year ended 30 September 2009 were audited by another auditors whose report dated 21 December 2009 expressed a disclaimer of opinion due to the following matters:-
a. Insufficient audit evidence to satisfy themselves in relation to the transactions with the sub-contractors of the Company.
b. Relevant information were not obtained in relation to the adequacy of the allowance for doubtful debts made on the amount due by the sub-contractors of the Company which comprised mainly interest free advance to these sub-contractors in the course of carrying out the relevant contract work granted to these sub-contractors by the Company, amounted to RM142,235,211.
c. Insufficient audit evidence to satisfy themselves that the impairment loss made for plant and equipment held by the Company’s sub-contractors on behalf of the Company amounted to RM35,342,871 are adequate.
d. Outstanding confirmation of balances and other alternative audit evidence including unreconciled differences on trade receivables with a total balance of RM10,982,456.
e. Insufficient audit evidence and information in relation to the nature of payments made to certain suppliers amounted to RM2,387,965.
f. Insufficient audit eveidence and information in relation to the carrying amount of borrowings shown on the balance sheet of RM125,000,000 as at 30 September 2009 and outstanding confirmation of balance on such borrrowings from the lenders.
g. Outstanding confirmation of trade and other payables with a total amount of RM181,983,912 as at 30 September 2009 and this total amount was RM23,874,985 lesser than the total of trade and other payables subsidiary ledger. The difference of RM23,874,985 remained unreconciled.
h. Other outstanding confirmation of balances, information and/or supporting documents in relation to other class of accounts which are considered by the auditors to be material sum or amounts, and have not been provided to the auditors for verification:
i. Basis and supporting documents for the accruals sum of RM2,456,987.
ii. Confirmation from solicitors on the impact and status of legal cases faced by the Company.
iii. Information/supporting documents of staff costs amounted to RM23,876,515
iv. Supporting document of sales and purchases amounted to RM87,616,324 and RM76,565,919 respectively.
v. The basis of the fair value of an investment property amounted to RM135,000,000 determined by the directors and hence affecting the fair value reduction adjustment made of RM20,000,000 recognised in the income statement
There were no information and/or supporting documents provided to us to resolve the above matters and we are unable to carry out any other audit procedures to satisfy ourselves that the opening balances of the Company are fairly stated. As a result, we are unable to satisfy ourselves that the opening balances as at 1 October 2009 do not contain misstatements that may materially afftect the current year amounts reflected in the financial statements.
2. Current year unresolved matters
In the course of carrying out our audit, we have attempted to obtain sufficient and appropriate audit evidence to satisfy ourselves that the following items reflected in the financial statemnets are faily stated, but failed:
a. Bank balances amounted to RM590,871 and borrowings amounted to RM87,987. The relevant documents such as bank confirmation letters, bank facilities letter, loan agreements, bank statements and others could not be provided to us for verification.
b. An amount of RM20,687,525 recorded in the revenue of the Company in which no supporting documents such as sales invoices, dispatch notes, bills of lading and others that could substantiate these sales except for the relevant bank-in-slips in which the directors represented that the money received by the Company represents revenue from sale of goods to overseas customers. According to the directors, the relevant sales documents have been misplaced by the Company’s personnel who has left the Company. There were no other information and/or supporting documents provided to us to resolve the above matters and we are unable to carry out any other audit procedures to satisfy ourselves that the proceeds received represent sales revenue of the Company.
3. Going concern issue
The Group and the Company have a capital deficiency of RM362,071,837 (2009 – RM306,305,399) and RM300,734,790 (2009 – RM203,333,943) respectively as at 30 September 2010 as a result of losses sustained over the years. In addition, the current liabilities exceed the current assets. As mentioned in Note XX to the financial statements, the financial statements have been prepared on the accounting principles applicable to a going concern which contemplates the realisation of assets and the satisfaction of liabilities in the normal courses of business. Continuity as going concern is therefore, dependent on future profitable operations of the Group and of the Company and the availability of funds to meet the obligations as and when they fall due.
The evidence available to us to confirm the appropriateness of preparing the financial statements on the going concern basis was inadequate. The circumstances of which, together with the possible effect on the financial statements should this basis be inappropriate, are set out in Note XX to the financial statements. As a result, and in the absence of any alternative evidence available to us, we are unable to form an opinion as to whether the financial statements which have been prepared on the accounting principles applicable to a going concern, gives a true and fair view of the financial position of the Group and of the Company as at 30 September 2010, and of the results of the operations, the cash flows and changes in equity for the financial year ended on that date.
Because of the matters described in the Basis for Disclaimer Opinion paragraphs above, we are unable to form an opinion as to the appropriateness of the financial statements which were prepared on going concern basis.
Report on Other Legal and Regulatory Requirements
In accordance with the requirements of the Companies Act, 1965 in Malaysia, we report that in our opinion:
a) except for the matters as described in the Basis for Disclaimer Opinion paragraphs, the accounting and other records and the registers required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act.
b) we have considered the audited financial statements of all the subsidiaries of which we have not acted as auditors, which are indicated in Note XX to the financial statements.
c) we are satisfied that the financial statements of the subsidiary companies that have been consolidated with Company’s financial statements are in the form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations as required by us for those purposes.
This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.
|[ AF : 0012345 ]||[ 123/01/13(J) ]|
|AUDITORS & ASSOCIATES||AWANG BIN SALLEH|
|Chartered Accountants||Chartered Accountant|