KUALA LUMPUR (May 29): Prior to substantial shareholder Datuk Abdul Kadier Sahib proposing to change the external auditor, Serba Dinamik Holdings Bhd’s board already wanted KPMG to resign, according to non-independent executive director Datuk Syed Nazim Syed Faisal. 

“The board actually requested for KPMG to resign [as the auditor did not reply promptly]. However, they have refused to do so,” said Syed Nazim, who is also the company’s chief financial officer (CFO). 

According to him, KPMG had yet to revert to Serba Dinamik’s response to the former’s queries more than three weeks ago on May 6. The auditor did not provide any direct or immediate timeline to conclude its audit.

“From our perspective, as per the request of the shareholder (Abdul Kadier), there are concerns raised with regard to our timeline of the audit progress. We believe we have addressed the issue, and the shareholder who is also on the board also takes this matter quite seriously.

“What we intend to do is to ensure the main agenda of us is to ensure the day-to-day operations are not interrupted and the audit is completed on time,” he explained at a virtual press conference today held for the company’s management to explain further the issues pertaining to the statutory audit that have been raised to the independent directors.

On Tuesday, Serba Dinamik announced to Bursa Malaysia that it wanted to commence a special independent audit after its external auditor KPMG flagged some audit issues. 

Two days later, the company’s second largest shareholder Abdul Kadier sent a notice to Serba Dinamik proposing to change the auditor without stating the rationale for the move. 

In a filing with Bursa, Serba Dinamik said KPMG had raised issues relating to sales, trade payables and material on site balances involving 11 parties which accounted for total sales transactions of RM2.32 billion, a trade receivables balance of RM652 million and materials on site balance of RM569 million.

Based on the unaudited accounts, Serba Dinamik’s receivables had ballooned to RM1.865 billion as at end-2020 from RM880 million at end-2017.

Its group managing director Datuk Dr Mohd Abdul Karim Abdullah today reiterated at the press conference that the management did nothing wrong when commenting on the audit issues flagged by KPMG.

Coincidentally, Serba Dinamik has changed its financial year end to June 30, 2021 from Dec 31, 2020. This raised some eyebrows, particularly after news of KPMG having problems verifying some suppliers and customers, as well as certain contracts.

Syed Nazim, however, explained that the change in the financial year end was to give KPMG an additional timeline to complete the audit.

He noted that the current audit process by KPMG “has been stopped to complete the independent review”.

“Due to the issues raised and the fact that the audit has been stopped to complete the independent review, this led to a slight [concern] of the shareholder itself,” Syed Nazim said.

As KPMG did not respond promptly to the management, Syed Nazim said, it raised significant doubt whether the audit can be completed on time "even though we have changed our reporting year [end]". 

When asked to elaborate on the reaction of the independent directors, Syed Nazim said: “Those discussions they had were technically private and we are not aware of what was being discussed in the session nor are we able to present what transpired during the meeting.”

No independent director was present at the press conference. The company also did not respond to The Edge’s question on which party initiated the independent review.

Serba Dinamik also reiterated that it had not changed its operations in a material way, aside from how the company “took on new customers across a few countries in FY20".

“Of course as part of our audit procedures, KPMG will always ask questions with regard to transactions and balances,” said Syed Nazim.

Abdul Karim, meanwhile, commented that the approach KPMG took this year “was a bit different” from previously. 

“Some of these [questions] go back to the due diligence that we did before we got the approval for the IPO (initial public offering in 2017).”

Some of the audit issues raised by KPMG were elementary, such as differences in the names or addresses of Serba Dinamik’s clients in contracts and invoice documents — which Serba Dinamik explained as being administrative in nature or were merely typing errors.

The auditor also found discrepancies in the commercial registration addresses of certain suppliers and customers, such as housing a supermarket or labour accommodation. Serba Dinamik’s responses included that the party had moved office or that the auditor visited a wrong address.

KPMG has raised five pertinent issues in relation to Serba Dinamik’s FY20 audit sales transactions, trade receivables and payables, as well as material on site balances of over RM3 billion locally and overseas.

The company is in the midst of conveying an extraordinary general meeting (EGM) to remove KPMG as its external auditor in exchange for BDO, which requires a simple majority for the resolution to be passed. 

The company expects the voluntary suspension of its shares to be lifted on Monday. The counter last closed at RM1.61, valuing the group at RM6 billion.

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