Axis Incorporation Bhd’s special audit to resolve its outstanding material audit issues concerning its financial year ended March 31, 2008 financial statements is still ongoing. The company earlier announced that  it expected the conclusion of the special audit on or by Oct 6,2008. The company has come under scrutiny from Bursa Malaysia after failing several times to submit its financial statements for FY08, which had been due on July 31. It had also been queried by the exchange after one of its announcements on its inability to close its accounts was preceded by a massive 63% plunge in its share price.

Apparently, there were some significant discrepancies which their external auditors, Messr Howarth  are unable to complete the audit and form an audit opinion, pending the receipt of information and explanations.

Append below are the details which are extracted from Bursa Saham Malaysia’s website pertaining to Axis’s reply to Bursa  dated 31st day of July 2008 It basically outlined the query from Bursa, replies from Axis and the material discrepancies that Messrs Howarth is unable to verify hence delay the submission of the financial statements.

(A) EARLIER QUERY FROM BURSA SAHAM:

Bursa Securities required immediately the following information for public release:-

1. Full detail of the material unresolved issues and the amount involved, if any, as raised by your external auditor, Messrs Horwath. 2. Expected timeframe required by your Company to resolve the issues mentioned above.

3. Information on the Special Audit :-
a) Name of auditor
b) Appointment date
c) Timeframe required to conduct the special audit
d) Scope of the special audit

4. The impact of material unresolved issues on your Company’s financial statement for the financial year ended 31 March 2008.   (B) REPLY BY THE COMPANY:

Axis Incorporation Berhad (”Axis” or the “Company”) ‘s reply to query on the Submission of the Audited Fianncial Statments for the financial year ended 31 March 2008Reference is made to your letter of even date via fax to us this afternoon, the Board of Directors is pleased to reply the queries as follows:-

1. Full detail of the material unresolved issues and the amount involved, if any, as raised by your external auditor, Messrs Horwath The external auditors, Messrs. Horwath have disclosed the following in the draft financial statements:-

(i) Included in other receivables as at 31 March 2008 are amounts due from the Contract Manufacturers of approximately RM105 million. The amounts outstanding as at 31 March 2008 showed a significant increase compared to the amounts outstanding of approximately RM11 million in the previous financial year. Subsequent to the balance sheet date, approximately RM20 million have been settled by the Contract Manufacturers.

(ii) The Contract Manufacturers also owed the Group a total of approximately RM28 million as at 31 March 2008 for sales of fabrics by the Group to the Contract Manufacturers. This amount is included under Trade Receivables in the financial statements.

*(iii) As at 31 March 2008, included in other receivables are prepayments of approximately RM32 million made to certain suppliers for the supply of embroidery services, purchase of fabrics and accessories. Subsequent to the balance sheet date, approximately RM11 million of these services and goods were received by the Group. As represented by management, the balance of approximately RM20 million are expected to be settled by the end of September 2008 through further delivery of services and goods.

** Note: All the numerical figures as stated above are mere estimates taken from the draft Audited Financial Statements and they are not the final figures agreed upon by the Audit Committee and the Board of Directors. In view of the significance of the said matters set out above, Messrs. Horwath are unable to complete the audit and form an audit opinion, pending the receipt of information and explanations on the above matters:

·                     unable to obtain sufficient appropriate audit evidence and explanations to ascertain the following:-

(a) the basis of the advances made to the Contract Manufacturers, and whether the advances and settlement thereof are in compliance with the strategic alliance agreement with the Contract Manufacturers; (b) the recoverability of the outstanding balances due from the Contract Manufacturers (net of the settlement subsequent to 31 March 2008) in relation to the trade receivables and advances;

(c) the recoverability of the net balance of the prepayments made to suppliers as stated in (iii) above.2. Expected timeframe required by your Company to resolve the issues mentioned above. The expected timeframe required by the Company to resolve the issues affecting the financial statements as at 31 March 2008 will be known once the appointment of the auditors for the special audit is determined by the Board and Bursa Malaysia Securities Berhad (“Bursa Securities”) will be advised accordingly.3. Information on the Special Audit:-

(a) Name of auditor

The name of the auditor will be advised when it is determined by the Board.

(b) Appointment date

The appointment of the independent auditors will be with immediate effect once the Board of Directors made its decision.

(c) Timeframe required to conduct the special audit

The time frame required to conduct the special audit will be determined once the Board approves the appointment of the independent auditor and the Company will advise Burse Securities in due course.

(d) Scope of the special audit

The scope of the special audit has not been finalised as of now. However, the Board of Directors will ensure that the scope of the special audit will cover detailed investigations on all the issues raised by the external auditors, Horwath.

4. The impact of material unresolved issues on your Company’s financial statement for the financial year ended 31 March 2008

The Board is committed to resolve the material unresolved issues raised by Horwath. However, the full impact will only be known upon the outcome of the Special Audit.

In the event that the figures under paragraph 1 (i), (ii) and (iii) above are confirmed, the Management will have to take steps to recover the said amounts totalling approximately RM161 million in full, failing which, they may result in the write-off of those amounts uncollected in the Audited Financial Statements for the financial year ended 31 March 2008.

5. Relationship with Contract Manufacturers

The Contract Manufacturers are LA. (Cambodia) Garment Pte. Ltd., Vivatino Design (Cambodia) Pte. Ltd. and United Garment (Vietnam) Co. Ltd. and have been the Contract Manufacturers for Chongee Enterprise Sdn Bhd (”Chongee”), a subsidiary of Axis for a number of years and have formalised their relationship through a Strategic Alliance Agreement entered between the parties on 5 May 2008. Under that Strategic Alliance Agreement, the strategic partners are entitled to be paid a 25% advance payment of the value of a confirmed order for the cutting and sewing of the garments. In return, the strategic partners are obligated to handle local licensing requirements and to always keep their factory and workplace in full compliance with USA and European environmental and human rights standards.

Extracted from the Bursa Saham’s website dated 6/10/08, MEM Technology Bhd (Mesdaq) has been publicly reprimanded for the breach of Rules 9.22(1), 9.23(1), 9.24 and 9.16(1)(a) of the MMLR and were imposed fines on the following directors of MEMS in respect of the Company’s breaches of Rules 9.22(1), 9.24 and 9.16(1)(a) of the MMLR aforesaid :- 

• Besides the public reprimand, Bursa Securities also insists that MEMS is required to carry out a limited review on the Company’s quarterly report submission. The limited review must be performed by the Company’s external auditors for four quarters commencing from the quarter subsequent to the date hereof. The quarterly report announcements must state that it has been reviewed by the Company’s external auditors.

1.0  According to SC, MEMS had breached the following:

1. Rule 9.24 of the MMLR for failure to submit Company’s annual audited accounts and annual report for the financial year ended 31 July 2007 (“AAA 2007” and “AR 2007”)) on or before 30 November 2007 and 31 January 2008 respectively. The AAA 2007 and AR 2007 were only submitted on 23 April 2008 and 2 May 2008 respectively. Further, the external auditors, KPMG had expressed a disclaimer opinion in the AAA 2007 (“the Disclaimer”) and MEMS was classified as a Guidance Note No. 3/2006 company on 28 April 2008 based on the Disclaimer;
2. Rule 9.22(1) of the MMLR for failure to submit Company’s quarterly report for the financial period ended 31 October 2007 (“QR 1/2008”) and 31 January 2008 (“QR 2/2008”) on or before 31 December 2007 and 31 March 2008 respectively. The QR 1/2008 and QR 2/2008 were only submitted on 28 April 2008;
3. Rule 9.23(1) of the MMLR for failure to submit Company’s research report for the financial period ended 31 January 2008 (“RR 31/1/08”) on or before 31 March 2008. The RR 31/1/08 was only submitted on 27 June 2008; and
4. Rule 9.16(1)(a) of the MMLR in respect of the Company’s announcement dated 27 September 2007 on the fourth quarterly report for the financial year ended 31 December 2007 (“QR 4/2007”) which failed to take into account the adjustments as stated in the Company’s announcement dated 28 April 2008.

MEMS had reported an unaudited profit after taxation of RM21.473 million in the QR 4/2007 (“Unaudited Results”) which was announced on 27 September 2007. However, the Company had on 23 April 2008 reported an audited profit after taxation of RM13.110 million in the AAA 2007 (“Audited Results”). The decrease in the profit after taxation between the Unaudited Results and the Audited Results for the financial year ended 31 July 2007 of RM8.363 million represents a deviation of approximately 38.95% (“the Deviation”).The Deviation was mainly due to the reversal of RM19.72 million revenue arising from the Board of Directors’ decision not to recognize the revenue after KPMG has expressed its concerns as announced on 27 November 2007.

2.       All Of the aforesaid directors were found to be in breach of Rule 16.11(b) of the MMLR for permitting either knowingly or where they had reasonable means of obtaining such knowledge the Company to commit the breaches of Rules 9.24, 9.22(1) and 9.16(1)(a) of the MMLR aforesaid.

3.       Bursa Securities views the above contraventions seriously and hereby cautions MEMS and its Board of Directors on their responsibility to maintain appropriate standards of corporate responsibility and accountability in order to achieve greater disclosure and transparency to its shareholders and the investing public.   

Recently, in the press, there was this interesting article on IOI Corp Bhd where Credit Suisse Research said in a note to clients that IOI Corp’s valuation premium was affected on concerns over Yeo How’s departure

“Credit Suisse Research said the “delicate balance” between executive chairman Tan Sri Lee Shin Cheng’s entrepreneurship and Yeo’s good capital management and corporate governance would be affected. It downgraded IOI Corp to underperform from outperform and cut its target price to RM7 from RM10.”

This might not be very surprising, as sometimes bankers and public investors are wary when long serving staff specially Chief Financial Officer who worked in family controlled companies who supposedly help to uphold proper corporate governance and control mechanism suddenly leave their companies. In this case, unfortunately it applied to IOI Corp. 

Some small details:

• Datuk Yeo How, a long serving director has resigned IOI Corp Bhd and IOI Properties Bhd group executive director of finance and corporate affairs to pursue a new career overseas. He is a certified public accountant, was first appointed to the board in 1996. He has been with the IOI Group for the past 24 years. According to IOI one of his principal responsibilities is as chief financial officer. (Yeo also oversees the group’s commodity marketing and palm-based manufacturing business units.)
• Yeo would be leaving the group to pursue a new career. It was learnt Yeo could have accepted a job offer by a Singapore-based plantation group.
• Datuk Yeow Chor, the chairman’s eldest son who has been on the board since 1996 is supposed to replace  Datuk Yeo How.

Earlier Welli Multi was in the limelight over SC’s query over the authencity of its trade receivable of Rm113m, recently, the company’s former managing director Ang Sun Beng and former executive director Ang Soon An were charged by the Securities Commission (SC) with four counts of providing misleading financial statements to both the SC and Bursa Malaysia Securities Bhd.

Details:

• Both brothers were released on bail of RM150,000 each with the stipulation that both surrender their international passports to the court. If convicted, each faces a fine of up to RM3 million or a maximum jail term of 10 years, or both.
  The alleged offences were committed in contravention of Section 122B(a)(bb), read together with section 122(1) of the Securities Industry Act 1983 (SIA). The alleged misleading statements relate to Welli Multi’s revenue figures in the audited statements for the year ending Dec 31, 2005 and its quarterly reports for the financial periods ended March 21, June 30 and Sept 30, 2006
• The SC also compounded Welli Multi’s former executive director and chief executive officer Tan Chin Han for RM100,000 for knowingly authorising the furnishing of a misleading statement to Bursa Malaysia on Feb 28 last year. The misleading statements were in relation to Welli Multi’s revenue figures for the three months ended Sept 30, 2006 and are in breach of Section 122B of SIA.
• Since November last year, the SC has been coming down on Welli Multi to rectify and reissue the aforesaid financial statements. The company, which is in the business of processing palm kernel, was also on the SC’s radar due to suspicious receivables.
• Although Welli Multi saw the injection of new blood at the beginning of April, the company has yet to supply Bursa Malaysia with its outstanding financials.
  These comprise quarterly reports for the quarters ended June 30, 2007, Sept 30, 2007 and Dec 31, 2007; audited financial statements for the period ended March 31,2007 and the annual report for the year ended March 31, 2007

Liqua Health Corporation Bhd, a main board-listed company which is primarily involved in the selling of health food products like spirulina using the multi level marketing model/concept has informed Securities Commission that it had appointed chartered accounting firm Baker Tilly Monteiro Heong to conduct an investigative audit of certain transactions disclosed in the company’s fourth-quarter results for the period ended Dec 31, 2007.

Some details:

•  The special audit is to look at a transaction amounting to RM15 million paid by Liqua’s wholly owned subsidiary Liqua Health Marketing (M) Sdn Bhd to an exclusive supplier of health care products. According to the notes to the accounts for the unaudited results for the financial year ended Dec 31, 2007, Liqua stated that the money was paid to the supplier of nine core products who is supposed to deliver the products to its wholly-owned subsidiary, Liqua Health Marketing (M) Sdn Bhd.. However, the scheduled products were not received leading to the cancellation of the orders and Liqua sought repayment of the amount paid. A written confirmation and commitment to repay was given by the supplier. Notwithstanding this commitment from the supplier and pending finalisation of the proposed settlement, Liqua has made a provision for RM8 million in doubtful debts. It is believed that the probe could be to ascertain if Liqua would be required to make additional provisions and who the supplier is.
• Liqua, which posted over RM11 million in net losses on the back of RM41 million revenue for the financial year ended Dec 31, 2007, has seen significant changes to the board last month. It appointed Low Donald Han as chairman in mid-March and also redesignated executive directors Rohaya Hashim and Yeoh Eng Kong to non-executive positions.
• The health food marketing firm had chalked up some RM92.37 million in net losses for the financial year ended Dec 31, 2005 on the back of RM37.76 million revenue. The company booked RM78.46 million of “impairment of goodwill” for the year as stated in its 4Q05 results filing to Bursa.
• Net losses shrank to Rm3.39m during the 2006 financial year, but more than tripled to Rm11.08m during the 2007 financial year, despite an improvement in revenue to Rm41.36m. At the end of FY07, Rm108.67m in accumulated losses.