The on going Serba Dinamik saga takes on a new turn with the client seeking to take legal action against its auditors KPMG. This is in result of the impasse both have on the with its external auditors on the completion of the statutory audit for the Financial Year of 2020.
Serba Dinamik has placed blame on the ongoing situation and the adverse speculation which has been created in the market that has resulted in a significant drop in its share price and overall market capitalisation.
Accordingly, the public listed entity has made the decision to file a civil claim for substantial damages against KPMG on the grounds of professional negligence, breach of contract and breach of statutory duty on broadly the following grounds, among others.
KPMG in the course of their audit raised issues in obtaining various confirmations from SDHB’s customers and vendors on various payables and receivables including establishing the existence of the said customers and suppliers.
These matters were raised in a Special Board of Directors meeting on 3rd May 2021, where KPMG indicated that they were not willing to complete the audit until and unless a 3rd Party independent review is conducted on the alleged findings raised by KPMG.
SDHB contends that the findings raised by KPMG were not substantive in nature that warrants an independent review and that the issues faced by KPMG are entirely attributable to their own negligence, among other breaches, in the course of the audit process which forms the subject matter of the civil suit based on the grounds cited above.
Some of the alleged findings raised by KPMG and the immediate explanations provided by SDHB include:
1) KPMG had concluded that several individuals who had signed audit confirmation requests on behalf of their companies (who are SDHB’s customers and suppliers) did not exist merely based on calling the front desk receptionist of these companies to verify identity (some of which employ thousands of staff).
This was despite the fact that senior members of the said companies had subsequently confirmed the existence of these individuals and no further action was taken by KPMG
2) In another instance involving a middle eastern foreign vendor, KPMG had performed a site visit to verify the existence of their office and concluded that the office did not exist.
Upon immediate examination of KPMG’s concerns, SDHB immediately informed KPMG that the reason they did not find the office was because the address concerned had a mix of numerical digits and Arabic letters which the auditor misread and ultimately went to the wrong address.
Proof of the correct address and office was provided by SDHB but KPMG had refused to verify the same.
3) When verifying a phone number of a vendor for SDHB, KPMG had placed reliance on an open-source phonebook app called “TrueCaller” which produced an inaccurate result towards the ownership the number.
Upon being informed of this, SDHB obtained an official telephone bill registered in the name of SDHB’s vendor to address this concern, yet no action to verify the same was undertaken by KPMG for reasons best known to them.
4) KPMG had also taken issue with discrepancies with IT contracts entered with foreign vendors where in the said contract the company name concerned was designated with an L.L.P. whereas in subsequent invoices the company concerned designated themselves with an LLP.
The difference of these two abbreviations is akin to a company having a “Sdn. Bhd.” and “Sdn Bhd” where these matters were not substantive in nature and would have been easily resolved with some diligence.
While SDHB says it appreciates that these matters ought to be addressed by KPMG prior to the completion of their audit report, they could have been resolved by KPMG themselves without need of a 3rd Party independent review. Its is also accusing KPMG of not observing international and local protocol such as not having any or adequate engagement between KPMG and SDHB, which is a fatal mistake on KPMG’s part.
The actions of KPMG ultimately led to the impasse and when news of this reached the open market, the natural and foreseeable consequence was a sharp drop in SDHB’s share prices, market capitalisation and general confidence.
After a comprehensive evaluation of this matter and obtaining a series of legal advice, SDHB is in view that it has a good and actionable claim against KPMG as a result of their action or inaction in refusing to complete the audit.
In order to clear concerns with the regulators and the market, SDHB will still investigate the issues raised by KPMG and announce the findings, notwithstanding the filing of this civil suit.
