THE Securities Commission (SC) has taken all relevant documents from China Automobile Parts Holdings Ltd (CAP) and other parties following a report by its external auditor that it is not able to stand by the 2015 accounts of the autoparts maker from China.
The SC has also enlisted the help of its counterpart in China, China Securities Regulatory Commission, to help in its probe of the company that was listed in January 2013.
“SC has secured relevant documents from all parties and we have also sought China Securities Regulatory Commission’s assistance. We take this matter seriously and will take the appropriate action when necessary,” a SC spokesperson said when contacted.
In an unprecedented event, the accounting firm PKF announced that its auditors report on April 6 2016, with respect to CAP’s performance for the financial year ended December 2015, should not be relied upon.
This is the first time an external auditor has withdrawn its assessment on a public-listed company. There were several cases overseas and in most instances, it heralds the financial troubles of the listed company. Among the more high profile companies where the auditor withdrew its report includes India’s Tata Finance in 2002, Yukos Oil Corp of Russia in 2007, Global Crossing of the US in 2004 and Herbal Life Ltd, also from the US, in 2013.
In the case of CAP, the reporting accountant at the time of its listing was BDO who subsequently resigned in 2015 and replaced with PFK. AmInvestment Bank was the principal adviser, legal placement agent and managing underwriter.
When the company was listed, the chairman was Datuk Seri Jalaluddin Abdul Rahim and the vice chairman was Ong Juan Tee, the founder who was from Hong Kong. The managing director was Li Guo Qing from the Philippines and the executive director was Wang YuYun, a Chinese national who is also the spouse of Li. Wang replaced Jalaluddin as executive chairman on May 15, 2014. This was followed by Ong’s resignation as vice chairman on May 16, 2014.
Yesterday, the external auditor, PKF drew attention to seven suits involving a sum of no less than 263.05 million yuan (RM163.68mil) tied to a subsidiary of CAP, QuanZhou FenSun Automobile Parts Co Ltd (FenSun) which was not disclosed to it by the company previously.
“CAP’s directors did not disclose the seven cases during the course of audit or any point in time,” PKF had stated in a letter to the board of CAP that was filed with Bursa yesterday.
According to a filing, PKF had requested for a meeting with the board of CAP on April 25, 2017 to disclose the seven litigation cases involving CAP’s subsidiary, QuanZhou FenSun Automobile Parts Co Ltd (FenSun).
Subsequent to its meeting in April, PKF engaged Yuan Tai Law Offices in China to carry out an independent legal due diligence on FenSun.
“The information that we have obtained, corroborated by Yuan Tai Law shows that there were significant unreported borrowings and material litigation during FenSun’s financial year ended Dec 31, 2015,” PKF said in the letter.
Also, PKF noted that FenSun’s directors were obliged to make the appropriate records for audit in respect of the financial year ended 2015, but they (FenSun) had failed, refused and/or neglected to meet the obligations. “We had discussed the matter with the audit committee and the board of directors and recorded our view in a later on 1 May 2017. In spite of our advice, no appropriate and effective action had been taken to address the matter.
“The state of affairs thus far is unsatisfactory and may possible infer an attempt to continue the suppression of facts and circumstances surrounding the material litigation now revealed,” PKF had stated.
Since the financial effects of these undisclosed events had not been determined and accounted for by CAP’s directors, PKF said the financial statements for the financial year ended December 2015 and PKF’s audited report dated April 6, 2016 did not give a ‘true and fair’ view of the company’s financial position and its cash flow for the period.
CAP had announced on April 25, that it would miss the April 28 deadline for submission of its FY16 annual report, as its auditors needed more time to verify the company’s sales details via various regional agents and foreign trade customers.
On May 12, CAP said its auditors wanted to verify the company’s value-added tax devices with the relevant tax authorities’ system directly. It said PKF also wanted to complete the verification of the company’s consignment notes or appropriate delivery documentation against the sales invoices.
CAP said the tax system in Fujian, China underwent three major upgrades and reforms within a year and this may have resulted in certain tax information being inaccurate.
“In order to meet PFK’s request, the person in charge of the company is in the midst of liaising with the tax department, so that the auditor can clarify directly with the tax department where necessary,” CAP noted in a Bursa filing in relation to the delay in its accounts for 2016. For FY16, CAP posted a loss of RM77.12mil on a revenue of RM205.28mil, from a net profit of RM42.31mil against a revenue of RM382.58mil in FY15.