Frankly Speaking: An amount too big to overlook

This article first appeared in The Edge Malaysia Weekly, on April 30, 2018 - May 06, 2018.
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Ikhmas Jaya Group Bhd announced last week that its audited profit attributable to the owners came in at only RM6.9 million for the financial year ended Dec 31, 2017 (FY2017) —  a variance of 51.5%, or RM7.4 million, compared with the unaudited figures unveiled on Feb 28.

The construction outfit said the variance was mainly due to a consolidation adjustment for the capitalisation of a depreciation charge on plant and machinery to the project cost.

The depreciation amount eligible for capitalisation was revised and a consolidation entry superseding the initial entry was recorded, it said in the announcement to Bursa Malaysia.

However, the initial entry was “inadvertently omitted” in the financial results in the fourth quarter ended Dec 31, 2017 (4QFY2017).

A variance of over 50% is a serious matter and raises the question of who should be held responsible for the omission.

Many find it hard to believe that such a big sum could be overlooked. Like it or not, this gives rise to speculation about the company’s corporate governance. Against the backdrop of a declining share price, an earnings contraction would add more pressure.

On the flip side, the investing public may be pondering whether the external auditor has done enough.   

An external auditor usually does a “quarterly limited review” of a company’s audited accounts.

Although it is not an audit, a limited review will ensure that the accounts are prepared according to rules and regulations. In this case, was a limited review done?

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