KUALA LUMPUR (May 23): The external auditors of Perak Corp Bhd have issued a statement of material uncertainty over the company's ability to function as a going concern.

"The group incurred a net loss of RM340.6 million during FY17 and, as of end-2017, the group's current liabilities exceeded its current assets by RM158.5 million," Ernst & Young said, adding a material uncertainty exists that could cast significant doubt over the group's ability to continue as a going concern.

In a bourse filing today, the group said the auditors had also highlighted an impairment test — which resulted in a loss of RM167.2 million — as an area of audit focus due to the significance of the amount and subjectivity involved.

This is related to property, plant and equipment of a subsidiary operating a theme park, where commencement of full operation had been delayed numerous times.

"Specifically, we focus on evaluation of the assumptions used by the group to estimate the recoverable amounts of the cash generating units, which include the number of visitors and the related income to be collected, staff costs and other operating costs, weighted-average cost of capital discount rate and terminal value growth rate," the auditors had said.

It added methods used in the estimation of recoverable amount from an impairment test on Perak Corp's investments in subsidiaries, which amounted to RM155.1 million or 32% of the group's total assets, are also "highly judgmental".

Another key audit matter to the auditors was Perak Corp's revenue recognition due to the risk of material misstatement and the significance of revenue recognised from its port services, and from the sale of lands.

In view of the auditors' statements, Perak Corp said it will dispose of certain land for cash to meet any payment obligation.

A key subsidiary of state agency Perbadanan Kemajuan Negeri Perak, Perak Corp said it will rely on its ultimate holding corporation to provide financial assistance to meet its liabilities, as and when they fall due.

Meanwhile, it will continue negotiations with banks to restructure terms of the syndicated term loan, and focus on cost savings and stringent cash flow management to remain competitive.

Perak Corp was last traded at 88 sen on May 22, for a market capitalisation of RM88 million.