KUALA LUMPUR: Nexgram Holdings Bhd has incurred a consultant fee of RM46.9 million for the financial year ended April 30, 2015 (FY15).

It is not only the lump sum, which is equivalent to one-third of the company’s market capitalisation, that has raised eyebrows — the accounting treatment of the amount in Nexgram’s books also raises questions.

However, the company’s chief executive officer Datuk Tey Por Yee said the amount incurred was a small sum. Nexgram will incur even higher consultant fees for two projects in Cyberjaya and Dengkil, Selangor.

Nexgram’s audited annual account for FY15 shows that its inventories stood at RM89.84 million, of which RM46.9 million was categorised as consultancy-nature expenses.

Booking consultant fees under inventories is not a common practice in the property development industry.

An industry player pointed out that Nexgram’s accounting practice of booking development expenditure under inventories was “unusual”. He opined that the amount incurred as consultancy-nature expenses seemed to be relatively higher than normal.

A few public listed property developers contacted revealed that consultant fees incurred prior to the completion of projects would be booked under “work in progress” accounts, which would be categorised as “development expenditure”.

“Companies will only move the development cost to inventories when the [property] project is completed ... that is the point of recognition,” said Jerry Lau Hing Kiet, a former senior general manager at the property development division of Gabungan AQRS Bhd.

When asked about Nexgram’s practice, an officer at the Malaysian Institute of Accountants (MIA), who declined to be named, pointed out that according to Malaysian Financial Reporting Standards, consultant fees should not be booked under inventories.

“Unless the company can justify that the development activities have commenced, and that it can be demonstrated that the development activities can be completed within a normal operating cycle, which is usually in one financial year. Otherwise, these costs should remain under non-current assets,” the MIA personnel said.

When contacted, the group’s auditor CHI-LLTC partner Tang Boon Hiap, who was in charge of Nexgram’s FY15 account, declined to explain the nature of the transaction and insisted that he is not answerable for not flagging the questionable booking.

SJ Grant Thornton was Nexgram’s external auditor before CHI-LLTC. SJ Grant Thornton resigned as the company’s auditor after a revised audit fee of RM500,000 (from RM200,000) was not approved by the board.

The consultancy-nature expenses paid by Nexgram represented 5.18% of the collective estimated construction cost of RM 906 million for both of the proposed property development projects.

When contacted, Tey told the digitaledge DAILY that the sum paid was catered for the company’s property development projects in Cyberjaya and Dengkil.

Tey said the sum paid was still considered trivial when compared to the projects’ gross development value (GDV), and the amount required is much bigger.

“For projects that have [a] GDV of RM1.44 billion, RM46.97 million is not much. In fact, I think this (consultancy-nature expenses) is not enough for the entire projects,” he said, adding that the groundworks for the projects have already begun.

When asked about the accounting treatment that was different from the industry’s norm, Tey reiterated that every payment made by Nexgram was in accordance with a schedule agreed by the projects’ off-taker, MyAngkasa Bina Sdn Bhd, and the relevant banks involved in financing the projects.

In December last year, Nexgram’s subsidiaries entered into an off-take agreement cum sale and purchase agreement with MyAngkasa, where the latter would buy the company’s two development projects in Cyberjaya.

MyAngkasa is a subsidiary of Angkatan Koperasi Kebangsaan Malaysia Bhd.

This article first appeared in digitaledge Daily, on September 14, 2015.