This article first appeared in The Edge Malaysia Weekly on June 28, 2021 - July 4, 2021

BURSA Malaysia has told Serba Dinamik Holdings Bhd that the scope of work of the independent reviewer looking into its accounts must specifically address the issues raised by the company’s former external auditor, KPMG PLT.

In response to a question from The Edge, Bursa says it has communicated to the board, especially the audit committee members, on the scope of work of the independent reviewer.

“The scope of work for the special independent review must specifically address, to the satisfaction of the exchange, the issues raised by the company’s external auditors. Bursa will continue to work with Serba Dinamik to ensure that the scope of work addresses the issues raised. We will continue to monitor the developments on this matter and undertake the necessary regulatory action, where warranted, to ensure the protection of shareholders’ interest,” the stock exchange regulator said last Friday.

In an unprecedented turn of events in Corporate Malaysia, Serba Dinamik initiated legal action against its external auditor KPMG last Tuesday on the grounds of professional negligence, breach of contract and breach of statutory duty.

KPMG has refuted the allegations and has said it would defend its position. Nevertheless, because of the adversarial position, the firm resigned, leaving Serba Dinamik without external auditors.

The resignation of KPMG has raised questions as to who will determine the scope of work to be undertaken by the special independent review of the accounts and how it will be determined. According to accountants and analysts, the process in defining the scope of work is crucial to ensure that the special independent review is credible.

“The scope of work is crucial for the validity of the review of the accounts and investigations into the red flags raised by KPMG. The company, being a conflicted party, cannot be left to determine the scope of work,” says an analyst.

“The authorities have to define the scope of work of the reviewer and ensure nothing is left out. Only then will the review carry some weight among investors.”

Prior to the commencement of the legal action, Serba Dinamik had already agreed in principle to appoint Ernst & Young (EY) to undertake a special independent review of the audit issues raised by KPMG. The appointment is pending the firming up of the scope of work.

Following the resignation of KPMG, Serba Dinamik stated that it was deliberating on whether to expand the scope of the independent reviewer or otherwise.

Meanwhile, the Securities Commission Malaysia (SC) stressed the importance of appointing an independent reviewer as soon as possible.

“It is important that the independent reviewer be appointed by Serba Dinamik as soon as possible. As far as the scope of work is concerned, the SC has worked with Bursa and provided our input on the scope of the independent review,” it tells The Edge.

In response to a question on when the SC would complete its investigations into the accounts of Serba Dinamik, it says, “Investigation on Serba Dinamik is still ongoing and as such, we are not at liberty to comment further.”

The SC commenced investigations into Serba Dinamik after KPMG red-flagged some issues such as receivables, inventory and materials at work sites. The accounts were supposed to have been closed for the financial year ended December 2020. However, the company extended its financial year end to June 2021 on May 7.

On May 25, Serba Dinamik announced that its external auditor had informed the board on some matters pertaining to the audit and it was in the midst of appointing an independent firm to assess the veracity and accuracy of the matter.

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