KUALA LUMPUR (July 2): Serba Dinamik Holdings Bhd has formally appointed Ernst & Young Consulting Sdn Bhd (formerly known as Ernst & Young Advisory Services Sdn Bhd) [EY] as the special independent reviewer to assist the board in undertaking the special independent review on the issues raised by its former external auditor KPMG PLT.
In a filing with Bursa Malaysia, Serba Dinamik said the appointment of EY is “also made under the directive from Bursa Malaysia pursuant to paragraphs 2.23 and 2.24 of the Main Market Listing Requirements of Bursa Malaysia”.
“This decision is on the back of discussion held between the company and Bursa Malaysia whereby EY is fit for the engagement as they are a reputable 'Big 4' firm of auditors,” it added.
The scope of the special review is as follows:
- (a) To assess the validity and veracity of the transactions and balances with respect to the 11 identified customers on sales transactions, trade receivables and materials on sites;
(b) To quantify the possible financial impact, if any. - To assess the validity and veracity of the purchases from six identified local suppliers.
- (a) To assess the validity and veracity of the IT contracts/ transactions entered into with the six identified customers and two identified suppliers;
(b) To assess the appropriateness of the revenue and costs recognised in the financial year in relation to the identified customers and suppliers above. - To assess the existence (where possible); and validity of the transactions and balances of the one identified customer and one identified supplier located in Bahrain.
Serba Dinamik has met today’s deadline that Bursa set for the company to appoint an independent reviewer to address the doubts that KPMG has raised on its financial accounts for the period ending June 30, 2021.
To recap, Bursa on Monday ordered the oil and gas engineering firm to appoint an independent reviewer by today in order to ensure the audit issues highlighted by KPMG are addressed in a "timely manner and provide clarity to the market".
The regulator also told Serba Dinamik, whose five independent directors resigned last Friday, to make sure the scope of the special independent review has to be the same as agreed between the audit committee and EY on June 15, which has been presented to Bursa, or as instructed by Bursa.
In addition, Bursa demanded that the appointed accounting firm to undertake the special independent review is allowed to report directly to itself and the Securities Commission Malaysia periodically on the progress of the review and the findings upon completion of the review.
The audit dispute between Serba Dinamik and KPMG was made known to the investing public on May 25 when the company announced that it wanted to commence an independent review on the audit issues pertaining to its statutory audit flagged by the auditor.
KPMG resigned last week on the ground that it was not able to discharge its duty as an auditor independently after Serba Dinamik's board decided to take legal action against the former for alleged negligence.
The matters highlighted by KPMG included "trade receivables balances and sales transactions for information technology contracts" with the amount involved to the tune of over RM4 billion.
The audit issues have sent Serba Dinamik's share price to a record low of 32 sen on Tuesday. Some RM4.7 billion market capitalisation has evaporated in four weeks. The stock rebounded slightly to end the week at 38.5 sen today. There were 542.68 million shares that changed hands with turnover of RM209.59 million.
Due to the sharp drop in share price, its major shareholder Datuk Dr Mohd Abdul Karim Abdullah has been forced to sell his shares this week.
Abdul Karim, who is also the company’s managing director and CEO, has so far sold 203 million shares this week, according to the filings to the stock exchange. His stake has shrunk to 21.59% currently from 27% prior to the force selling of shares.