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A Malaysian publicly listed company (PLC) became embroiled in controversy in late May after its external auditor flagged RM4 billion worth of unverifiable bills and transactions.
The matter escalated recently after the group held a press conference where its chairman likened its external auditor to a ‘shoplot auditor’ and claimed that they behaved like ‘gangsters’.
The PLC in question is Serba Dinamik Holdings Berhad, a multinational company headquartered in Shah Alam, Selangor which provides engineering solutions to power generation and oil and gas companies.
The saga began on 25 May when its external auditor KPMG — widely regarded as one of the four biggest auditing firms in the world — filed a notice to Bursa Malaysia that they had flagged RM4.54 billion worth of bills and transactions found within the company’s financial books in 2020, reported The Edge Markets.
The auditor said they were unable to verify the authenticity of the colossal spending with the third parties involved.
Bursa Malaysia is the stock exchange of Malaysia. Under Section 320 of the Capital Markets and Services Act, it is the duty of an auditor to disclose any breach of the rules of the stock exchange or any matter which may adversely affect the financial position of the listed company.
After KPMG sounded the alarm, Serba Dinamik’s share price plummeted by about 54% within the next few days, from RM1.61 on 25 May to RM0.77 on 4 June.
The Edge Markets reported that RM3 billion market capitalisation of the company was wiped out following a mass sell-off by institutional shareholders, such as Employees Provident Fund (EPF) and Kumpulan Wang Persaraan Diperbadankan (KWAP).
Its share price has yet to recover since. It is currently trading at RM0.56 as of publishing time.
Image via Harian Metro
About one month after KPMG shed light on the issue, Serba Dinamik held a press conference on Tuesday, 22 June, to clear the air on the matter.
Its newly minted chairman Datuk Mohamed Ilyas Pakeer Mohamed denounced its external auditor for blowing a “trivial” matter out of proportion.
During the press conference broadcasted by Astro Awani, Mohamed Ilyas — who was redesignated to the chairman position on 15 June — said the company lost RM3 billion in market capitalisation due to KPMG’s conduct.
He stressed that the auditor should have approached its client to seek clarification first.
“KPMG can be a big firm, but the standard of accounting […] or auditing that they do is just like a shoplot auditor,” The Edge TV heard him saying.
“I [was] surprised myself when I went in to see this problem and substandard sort of auditing.”
He said that if KPMG could mislead Serba Dinamik’s directors, Bursa Malaysia, and Securities Commission (SC) Malaysia over “trivial issues”, he is of the opinion that the company should stop working with the auditor.
“They even mentioned that […] they are going to stop the auditing. How can you work with auditors when you pay them a few hundred thousand ringgit, and they are dictating what to do?” he asked.
“They should be working with us and not taking our money and behaving like this.”
“They are behaving like gangsters. Official gangsters,” the chairman said, adding, “They don’t deserve to be auditors.”
Mohamed Ilyas said he will talk to the government to take action against KPMG.
Mohamed Ilyas announced that they will be suing KPMG for negligence and breach of contractual and statutory duties. He was joined by the company’s legal consultant Tan Sri Muhammad Shafee Abdullah, who is also former premier Datuk Seri Najib Razak’s lawyer, during the press conference.
Serba Dinamik chairman Datuk Mohamed Ilyas Pakeer Mohamed (top) and the company’s legal consultant Tan Sri Muhammad Shafee Abdullah speaking during the press conference on Tuesday.
Image via Bernama TV
Earlier, Mohamed Ilyas added that losing RM3 billion market capitalisation is not a small amount even for a company involved in the oil and gas industry, and that KPMG’s conduct had made Serba Dinamik look like a shady PLC.
“We decided to take legal action against KPMG. Legal action not because of the company not doing well, […] but the way the auditor portrays the company as though there [are] a lot of inappropriate things that have been happening,” he said.
Meanwhile, it is reported that when an auditor is practising their rights under Section 320 of the Capital Markets and Services Act, they are protected from any legal lawsuits
Additionally, Bursa Malaysia and SC Malaysia also clarified that they did not speak with Mohamed Ilyas after KPMG flagged the unverifiable bills and transactions at Serba Dinamik, reported New Straits Times.
Mohamed Ilyas claimed that he had spoken to the local stock exchange and the statutory body during the press conference on Tuesday.
In light of the issue, SC Malaysia reiterated that auditors have a statutory obligation to report any financial breach to the commission while reminding them to always exercise their professional scepticism during their audit.
Image via iMoney
The clip of Mohamed Ilyas censuring KPMG has since gone viral on the Instagram account of The Edge Markets
It has garnered over 104,000 views and 2,000 likes.
In the comments, many netizens called on the Serba Dinamik chairman to present facts for his statements.
Image via Instagram
View the video below: