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What Serba Dinamik says on its audit issues today

What Serba Dinamik says on its audit issues today
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WATCH: ‘KPMG is like a shoplot auditor’, says Serba Dinamik chairman

KUALA LUMPUR (June 22): Serba Dinamik Holdings Bhd today conducted a press conference — the second one after the company's audit issues have been made known. The company seemed to have sprung a surprise by announcing its civil suit against external auditor KPMG, on grounds of negligence, breach of contractual and statutory duties.

The legal action was taken after KPMG red-flagged several issues on Serba Dinamik's bills and transactions to the tune of RM4.54 billion in the 12-month period ended Dec 31, 2020.

The press conference was attended by its newly appointed chairman Datuk Mohamed Ilyas Pakeer Mohamed, Serba Dinamik group managing director (MD), chief executive officer (CEO) and largest shareholder Datuk Dr Mohd Abdul Karim Abdullah, and Serba Dinamik legal counsel Tan Sri Muhammad Shafee Abdullah.

The following are the main issues that the host addressed in the slightly more than an hour long briefing:

Why is Serba Dinamik suing KPMG?

Shafee (legal counsel): We found no infringement of law or non compliance of provision. The key content is missing for KPMG to do whistle-blowing to the Securities Commission Malaysia (SC). As a result of unfavourable red-flagging of issues, the SC acted purely on what KPMG said and raided the premises of this company.

We hope that KPMG takes the cue that the relationship is no longer tenable, and they will resign as the auditor. Another suggestion is for the board of directors to suggest for shareholders to ask for an EGM (extraordinary general meeting) to remove them. That is the fastest way to do so and to ensure the audit process can be completed quickly.

Mohamed Ilyas (chairman): KPMG has been negligent for many times, and kept the company in a lurch for 59 days [without response]. There is negligence, plus the red flags on trivial issues.

Mohd Abdul Karim (MD and CEO): One of the issues raised is that the auditor did not look at alternative procedures to determine the amount disputed. The issues raised by KPMG could have been resolved if KPMG resorted to the usual method of meeting the clients, raising the issues one by one and to see if the client would be able to answer the issues raised.

If we do not pursue this legal path, there are so many restrictions by the authorities against things like issuing statements. Now we do have that freedom to express our side of the story.

Some say the suit against KPMG is a distraction to the actual issue by Serba Dinamik. Can you comment?

Mohamed Ilyas: I don't know where you get your information from, but I think you should verify your information. If KPMG can mislead our directors, Bursa and the SC with trivial issues, I don't think we are supposed to work with them anymore. This is why we took the decision to take legal action on them.

Plus they (KPMG) mentioned they were going to stop the audit process. How can you work with your auditor when you pay them a few hundred thousand ringgit and they dictate what to do? They should be working with us, not taking our money and behaving like this.

They are behaving like official gangsters, hiding behind the veil of whatever act they have. I have got all the information, I spoke to SC and I spoke to Bursa. I think you better clarify your information.

What is the latest update on the appointment of EY for the independent audit review?

Shafee: This process of appointing an independent reviewer and whether it will be EY, they are still [deliberating].

The idea [for a review] was started by KPMG, and KPMG started with a completely wrong process and a lack of investigation. It is therefore in the interest of the company to set aside the sort of ideas that the auditor has suggested.

Why did Serba Dinamik have to appoint three more independent directors when it already had three?

Mohd Abdul Karim: Independent directors play an important role… we need credible and more qualified independent directors to help the company face these difficult challenges. We cannot be just sitting in the room and conducting videoconferences, but there is very minimal effort to speak to authorities, substantial shareholders like EPF (Employees Provident Fund).

It has to be a more action-oriented motion to be taken, talking to people and also to explain the real issue behind this. We feel the additional independent directors with the relevant qualifications and experience and network will play an important role to sail through these difficult times.

Would Serba need to provide for the disputed amounts in the accounts [soon]?

Mohd Abdul Karim: It is very premature to make that kind of assumption. In terms of the auditing process, there are always alternative ways to determine whether the amount outstanding is really as stated. This is one of the issues raised, as to why the external auditor did not look at those options to verify those figures.

Wouldn't you be worried that the lawsuit will further delay an independent review?

Mohd Abdul Karim: What has been announced on the independent review is status quo, and it will remain as what it is (the board agrees in principle to appoint EY for the independent review). In terms of the timeline, we will work out the necessary timeline to meet the deadlines imposed onto the company. It should be manageable.

We have done nothing wrong. The company has very strong fundamentals. We hope this will put the company in a position [to conduct] business as usual. We have a lot of ongoing projects and prospects we are working on. The position of the company at the moment is quite successful, in which we are speaking to a number of governments of the day in several countries.

Read also:
Serba Dinamik to take legal action against external auditor KPMG for alleged negligence
Amid suit against KPMG, Serba Dinamik yet to appoint EY for independent review 
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Kathy Fong