This article first appeared in The Edge Malaysia Weekly on January 10, 2022 - January 16, 2022

The audited results of Serba Dinamik Bhd for the 18-month period ended June 30, 2021, came as no surprise. The company made impairments for trade receivables and write-downs on inventory, causing it to sink into a loss of RM185.4 million.

It is a complete reversal from the profit of RM758.4 million that Serba had announced based on its unaudited accounts announced in August last year. The swing into the red was caused by impairments of RM385 million and inventory write-downs of RM552.6 million.

Based on what its new auditors have stated, there is no certainty if the company would need to provide more in the accounts reviewed.

Nexia SSY PLT, whcih was appointed in August last year to take over from KPMG, had stated in its opinion that the audit procedures “have been impeded by time limitations and occurrence of additional significant events impacting the completion of our audit”. Nexia warned that in view of the timing of its appointment, it was not in a position to observe the counting of the physical inventory for the period under review.

In addition, Nexia stated that under the terms of engagement, the Ernst & Young (E&Y) independent audit review has to be made available for it to complete the audit.

However, the E&Y audit review of Serba’s accounts is a subject of one of the many legal suits related to the accounts of the company.

The E&Y audit review is on RM4.5 billion of questionable transactions undertaken by Serba in the financial year under review. KPMG raised the red flag on the transactions, which Serba disputed. This led to KPMG resigning and being replaced by Nexia.

Bursa Malaysia had directed Serba to release the preliminary factual findings of the E&Y report by October last year. But Serba responded by filing an originating summons against Bursa and also on E&Y to stop the release of the preliminary report.

Hence, until the outcome of the case, which is scheduled to be heard next week, Nexia cannot conclude the accounts conclusively. The accounting firm stated that it was unable to express an opinion on the financial statement.

Consequently, Serba, which has been suspended since Oct 22 last year, has been classified as a Practise Note 17 issuer due to the opinion of the external auditor and needs to regularise its financial position.

Serba’s board has mapped out plans, including a fundraising exercise, to regularise its financial position. But as long as the RM4.5 billion dispute on the accounts is not resolved, can a regularisation plan be firmed up?

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