Sample Disclosure – Auditors’ Report With Disclaimer Opinion (15 December 2010)

ABC SDN. BHD.

(Incorporated in Malaysia)

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ABC SDN. BHD.

Report on the Financial Statements

We have audited the financial statements of ABC SDN. BHD., which comprise the balance sheets as at 30 September 2010 of the Group and of the Company, and the income statements, statements of changes in equity and cash flow statements of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages X to XX.

Directors’ Responsibility for the Financial Statements

The directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with Financial Reporting Standards and the Companies Act 1965 in Malaysia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

Basis for Disclaimer of Opinion

1.    Effect of unresolved matters resulted in disclaimer of opinion expressed by the previous year’s auditors

The financial statements of the Group and of the Company for the previous year ended 30 September 2009 were audited by another auditors whose report dated 21 December 2009 expressed a disclaimer of opinion due to the following matters:-

a.    Insufficient audit evidence to satisfy themselves in relation to the transactions with the sub-contractors of the Company.

b.    Relevant information were not obtained in relation to the adequacy of the allowance for doubtful debts made on the amount due by the sub-contractors of the Company which comprised mainly interest free advance to these sub-contractors in the course of carrying out the relevant contract work granted to these sub-contractors by the Company, amounted to RM142,235,211.

c.    Insufficient audit evidence to satisfy themselves that the impairment loss made for plant and equipment held by the Company’s sub-contractors on behalf of the Company amounted to RM35,342,871 are adequate.

d.    Outstanding confirmation of balances and other alternative audit evidence including unreconciled differences on trade receivables with a total balance of RM10,982,456.

e.    Insufficient audit evidence and information in relation to the nature of payments made to certain suppliers amounted to RM2,387,965.

f.     Insufficient audit eveidence and information in relation to the carrying amount of borrowings shown on the balance sheet of RM125,000,000 as at 30 September 2009 and outstanding confirmation of balance on such borrrowings from the lenders.

g.    Outstanding confirmation of trade and other payables with a total amount of RM181,983,912 as at 30 September 2009 and this total amount was RM23,874,985 lesser than the total of trade and other payables subsidiary ledger. The difference of RM23,874,985 remained unreconciled.

h.    Other outstanding confirmation of balances, information and/or supporting documents in relation to other class of accounts which are considered by the auditors to be material sum or amounts, and have not been provided to the auditors for verification:

i.    Basis and supporting documents for the accruals sum of RM2,456,987.

ii.    Confirmation from solicitors on the impact and status of legal cases faced by the Company.

iii.    Information/supporting documents of staff costs amounted to RM23,876,515

iv.    Supporting document of sales and purchases amounted to RM87,616,324 and RM76,565,919 respectively.

v.    The basis of the fair value of an investment property amounted to RM135,000,000 determined by the directors and hence affecting the fair value reduction adjustment made of RM20,000,000 recognised in the income statement

There were no information and/or supporting documents provided to us to resolve the above matters and we are unable to carry out any other audit procedures to satisfy ourselves that the opening balances of the Company are fairly stated. As a result, we are unable to satisfy ourselves that the opening balances as at 1 October 2009 do not contain misstatements that may materially afftect the current year amounts reflected in the financial statements.

2.    Current year unresolved matters

In the course of carrying out our audit, we have attempted to obtain sufficient and appropriate audit evidence to satisfy ourselves that the following items reflected in the financial statemnets are faily stated, but failed:

a.    Bank balances amounted to RM590,871 and borrowings amounted to RM87,987. The relevant documents such as bank confirmation letters, bank facilities letter, loan agreements, bank statements and others could not be provided to us for verification.

b.    An amount of RM20,687,525 recorded in the revenue of the Company in which no supporting documents such as sales invoices, dispatch notes, bills of lading and others that could substantiate these sales except for the relevant bank-in-slips in which the directors represented that the money received by the Company represents revenue from sale of goods to overseas customers. According to the directors, the relevant sales documents have been misplaced by the Company’s personnel who has left the Company. There were no other information and/or supporting documents provided to us to resolve the above matters and we are unable to carry out any other audit procedures to satisfy ourselves that the proceeds received represent sales revenue of the Company.

3.    Going concern issue

The Group and the Company have a capital deficiency of RM362,071,837 (2009 – RM306,305,399) and RM300,734,790 (2009 – RM203,333,943) respectively as at 30 September 2010 as a result of losses sustained over the years. In addition, the current liabilities exceed the current assets. As mentioned in Note XX to the financial statements, the financial statements have been prepared on the accounting principles applicable to a going concern which contemplates the realisation of assets and the satisfaction of liabilities in the normal courses of business. Continuity as going concern is therefore, dependent on future profitable operations of the Group and of the Company and the availability of funds to meet the obligations as and when they fall due.

The evidence available to us to confirm the appropriateness of preparing the financial statements on the going concern basis was inadequate. The circumstances of which, together with the possible effect on the financial statements should this basis be inappropriate, are set out in Note XX to the financial statements. As a result, and in the absence of any alternative evidence available to us, we are unable to form an opinion as to whether the financial statements which have been prepared on the accounting principles applicable to a going concern, gives a true and fair view of the financial position of the Group and of the Company as at 30 September 2010, and of the results of the operations, the cash flows and changes in equity for the financial year ended on that date.

Disclaimer Opinion

Because of the matters described in the Basis for Disclaimer Opinion paragraphs above, we are unable to form an opinion as to the appropriateness of the financial statements which were prepared on going concern basis.

Report on Other Legal and Regulatory Requirements

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we report that in our opinion:

a)       except for the matters as described in the Basis for Disclaimer Opinion paragraphs, the accounting and other records and the registers required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act.

b)       we have considered the audited financial statements of all the subsidiaries of which we have not acted as auditors, which are indicated in Note XX to the financial statements.

c)       we are satisfied that the financial statements of the subsidiary companies that have been consolidated with Company’s financial statements are in the form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations as required by us for those purposes.

Other Matters

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

[ AF : 0012345 ] [ 123/01/13(J) ]
AUDITORS & ASSOCIATES AWANG BIN SALLEH
Chartered Accountants Chartered Accountant

Wonderland

Dated:

Sample Disclosure – Auditors’ Report With Disclaimer Opinion (28 September 2009)

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ABC BERHAD (CO. NO. X-123456)

REPORT ON THE FINANCIAL STATEMENTS

We were engaged to audit the financial statements of ABC Berhad, which comprise the balance sheets as at day/month/year of the Group and of the Company, and the income statements, statements of changes in equity and cash flow statements of the Group and of the Company for the financial year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages XX to XX.

Directors’ Responsibility for the Financial Statements

The directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities and the Companies Act, 1965. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. Because of the matters described in the Basis for Disclaimer of Opinion paragraphs, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.

Basis for Disclaimer of Opinion

As disclosed in Note X to the financial statements on Basis of Preparation, the Company has defaulted on the repayment of bank borrowings amounting to RMXXX,XXX,XXX which was due for payment on day/month/year and the solicitors representing the financier of the borrowings issued a notice of demand to the Company for full settlement of the outstanding borrowings and interests due as at day/month/year. At the date of this report, the Receiver and Manager appointed is  assessing a number of proposals in respect of the borrowings but no decision has been made. We could not obtain sufficient appropriate evidence on the following:

(a)           the appropriateness of the use of the going concern assumption in the preparation of the financial statements. As disclosed in Note X to the financial statements. The default of the borrowings and the relevant events occurred subsequently together with the lack of clear evidence to support the ability of the Group and of the Company to meet the repayment of the borrowings and the interest thereon have casted significant doubt on the Group and the Company’s ability to continue in operations and therefore the Group and the Company may be unable to realise its assets and discharge its liabilities in the normal course of business;

(b)           the recoverability of the carrying value of the property, plant and equipment of the Group amounting to RMXXX,XXX,XXX, as disclosed in Note X to the financial statements; and

(c)           the Company’s ability to recover the entire carrying value of its investments in subsidiaries and advances to subsidiaries. As at day/month/year.

Disclaimer of opinion

Because of the significance of the matters referred to in the Basis for Disclaimer of Opinion above, we do not express an opinion on the financial statements.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report that, in our opinion:

(a)           the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act.

(b)           we have considered the financial statements and the auditors’ report of the subsidiary of which we have not acted as auditors,

(c)           we have not been able to satisfy ourselves that the financial statements of the subsidiaries that have been consolidated with the Company’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group due to the matters referred to in Note X to the financial statements. We have not received satisfactory information and explanations required by us for those purposes.

(d)           the audit reports on the financial statements of all the subsidiaries were qualified in the manner as disclosed in Note X to the financial statements.

OTHER MATTERS

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

 

DEF & Co.

 

(No. AF: 1234)

Chartered Accountants

 

 

(No. 1234/1/10 (J))

Chartered Accountant

Wonderland

Day/month/year

Sample Disclosure – Auditors’ Report With Disclaimer Of Opinion (15 September 2009)

Independent auditors’ report to the members of ABC Bhd. (Incorporated in Malaysia)

Report on the Financial Statements

We were engaged to audit the financial statements of ABC Bhd., which comprise the balance sheets as at (date/month/year) of the Group and of the Company, and the income statements, statements of changes in equity and cash flow statements of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages XX to XX.

Directors’ responsibility for the financial statements

The directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. Because of the matters described in the Basis for disclaimer of opinion paragraphs, we were not able to provide a basis for an audit opinion.

 

Basis for disclaimer of opinion:

1. As disclosed in Note XX to the financial statements, the proposed disposal of a subsidiary has not been completed to date of this report. The directors made representation that the disposal price has been revised downward from RMXX,XXX,XXX to RMXX,XXX,XXX. The directors assumed that the revised disposal price also represents the fair value of the disposal group of the assets of this subsidiary company and hence resulted in the loss on re-measurement of assets of the disposal group amounted to RMX,XXX,XXX which has been recognized in the income statement. However, we are unable to obtain sufficient appropriate audit evidence to satisfy ourselves as to the revised disposal  price, the faire value of the disposal group of assets, the loss on re-measurement of assets of disposal group, nor the carrying amount of the re-measured assets.

2. The Group and the Company have posted a capital deficiency of RMXXX,XXX,XXX and RMXXX,XXX,XXX respectively as at 30 June 2009. However, the current year financial statements have been prepared based on the assumption that the Group and the Company continue to operated as a going concern which contemplates the realization of assets and meeting the obligations arising therefrom the liabilities of the Group and of the Company in the normal course of business. In addition, the Group and the Company have defaulted the payment of certain loans obtained and the negotiation with the relevant financial institutions on restructuring of the loans is in progress as disclosed in Note XX to the financial statements. These factors have raise concerns and significant doubt as to the ability of the Group and the Company to be able to continue as a going concern.

The financial statements do not include any adjustments relating to the amounts and classification of assets and liabilities that might ne necessary should the Group and the Company unable to continue as a going concern.

Opinion

Because of the significance of the matters as discussed in the Basis for disclaimer of opinion paragraphs, we do not express an opinion on the financial statements of the Group and the Company for the financial year ended (date/month/year).

 

Report on other legal and regulatory requirements

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:

(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act, except in respect of the matters described in the Basis for disclaimer above.

(b) We have considered the financial statements and the auditors’ reports of all the subsidiaries of which we have not acted as auditors, which are indicated in Note XX to the financial statements.

(c) We are satisfied that the accounts of the subsidiaries that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes, except in respect of the matters described in the Basis for disclaimer above.

(d) The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification and did not include any comment required to be made under Section 174(3) of the Act, except as disclosed in Note XX to the financial statements.

 

Other matters

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose.  We do not assume responsibility to any other person for the content of this report.