Saturday January 12, 2013
A tough test for the regulators
OPTIMISTICALLY CAUTIOUS By ERROL OH
FOR a company whose shares have been suspended from trading for more than three years and whose last publicly available financial results were for the fourth quarter ended December 2010, Golden Plus Holdings Bhd (GPlus) is surprisingly able to still make the news.
The latest sojourn in the limelight was after it released a special audit report by PricewaterhouseCoopers Advisory Services Sdn Bhd (PwCAS) on Tuesday. The key findings disclosed in the announcement via Bursa Malaysia are definitely noteworthy.
The news stories mainly focused on the fact that the 41-page report revealed that a wholly-owned subsidiary of GPlus had lost the land use rights and development rights to the undeveloped portion of a property project in China.
This is a big deal because as PwCAS points out, the Royal Garden project in Shanghai “is central to GPlus' profitability and sustainability” and is the “only meaningful source of income for GPlus in the immediate future”.
The firm warns that failure to secure an extension for the rights to develop Phase 3 of the project will result in “serious financial consequences” for GPlus.
But this is highly disputed matter. The report includes responses from the GPlus board of directors. They insist that Phase 3 there is also supposed to be a Phase 4 has received approval in principle and that the final approval letter will be issued only after the plans have been reviewed and approved.
This is not the only item on which the GPlus board is challenging PwCAS' views and conclusions. In fact, the board supplied comments for every one of the 11 key findings that are addressed in the report.
When releasing the special audit report, GPlus also submitted a copy of its Jan 7 letter to PwCAS to highlight certain comments “to ensure the readers of the said reports (sic) understand the explanation clearly”. In the letter, GPlus complains that some of its comments have not been included in the report in full, “hence, resulting in lack of clarity in our explanation”.
It's rare that the report from a special audit on a listed company is met with such rebuttal. Clearly, the GPlus management isn't willing to travel down the road of silence and passiveness.
For that matter, the special audit itself had been delayed for a long time.
In August 2008, Bursa Malaysia instructed GPlus to appoint accounting firm BDO Binder (now known as just BDO) as special auditor. The stock exchange said there was a lack of clarity in the management of the company's affairs and wanted the special auditor to conduct an in-depth review of GPlus' financial and business affairs to ascertain its compliance with the listing requirements.
GPlus rejected Bursa's choice. Through an April 2009 consent order (which is similar to a court order), PwCAS was picked to do the job. However, it took a while for the firm to even receive its letter of appointment.
In September 2010, GPlus called for an AGM to decide on PwCAS's appointment and the fees it should be paid. The directors explained that another firm had quoted a fee lower than asked by PwCAS to do the special audit.
They said: “Due to this, the directors have decided to table the said appointment and fee payment to the shareholders for approval to avoid any possible unfounded allegations against the directors.”
In response, Bursa Malaysia filed an application in the High Court to compel GPlus to comply with its directives and the consent order.
GPlus proceeded with the AGM, where shareholders supported the appointment of PwCAS but modified the resolution to essentially say GPlus would not pay PwC more than RM300,000 for professional fees and RM200,000 for disbursements.
It's not known if PwCAS went along with the AGM outcome. In any case, according to the special audit report, PwCAS' letter of engagement was dated Sept 20, 2010. However, the actual appointment was on Dec 17, 2010, when GPlus accepted the terms laid out in the letter.
It was only two months later that PwCAS commenced work, after GPlus had provided preliminary information.
Given the messy saga that had preceded the issuance of the special audit report, it's no surprise that the GPlus board objects to the findings.
Even with the limitations of the scope of work, the caveats and the careful language, the report raises a lot of doubt and concerns.
The question is, what will Bursa Malaysia and the Securities Commission do now? Most of us don't have the ability to penetrate the he-said-she-said complexity of the report. Here's a case that will surely test the resolve and resourcefulness of the regulators. This deserves our close attention.
l Executive editor Errol Oh was an audit assistant once. He wishes he had done special audits back then.