KUALA LUMPUR (Dec 2): Practice Note 17 (PN17) company Annum Bhd (KL:ANNUM) said it will work closely with its potential external auditor to resolve opening balance issues during the subsequent audit for the financial year ending Dec 31, 2024 (FY2024).
The statement, in a bourse filing on Monday, follows an independent assessment by Parker Russell, conducted in response to concerns raised by the company’s previous external auditor, SBY Partners PLT, which issued a disclaimer of opinion in Annum's audited financial statements for the 18-month period ended June 30, 2023.
The disclaimer of opinion contributed to Annum, formerly known as Cymao Holdings Bhd, being classified as a PN17 company in May this year. The wood products manufacturer now has a five-month deadline to submit its regularisation plan.
In its filing, Annum said it recorded RM369.93 million in total revenue for the 18 month-period with portions from plywood trading and wholesale of goods. However, SBY Partners had noted insufficient audit evidence for revenue recognition from plywood trading and wholesale goods amounted to RM197.34 million and RM50.3 million respectively.
The company's property, plant and equipment include a smart agriculture IoT system (SAIOT) valued at RM53.62 million, representing about 44% of the company’s total assets. The previous auditor had raised concerns over the existence, accuracy, completeness and valuation of the SAIOT, noting insufficient audit evidence.
In response, Annum referred to an independent assessment confirming the ownership, existence, accuracy, completeness and functionality of the SAIOT. The inspection, which included a review of all greenhouses, verified that the system is fully operational.
SBY Partners also raised concern that long leasehold land and buildings with carrying amounts of RM8.23 million and RM8.45 million respectively for the 18-month period have been vacant. In addition, it had assessed that the land and building have indications of impairment as the land and building do not generate future economic benefits to the group.
The carrying amounts of the land and buildings are below the market value indicated in the valuation report issued by valuer in 2020, with no impairment required, said Annum.
Security and maintenance fees
Annum also referred to SBY Partners' observation that the company's operating expenses for FY2023 included RM850,000 for security and factory maintenance fees paid in cash. Further, the company also incurred RM650,000 in security fees, which were paid in cash during FY2023. Management has reclassified this as a prior year adjustment in the financial statements.
In response, the auditor conducted extended procedures, engaging with the audit committee, and questioned the validity of the RM1.5 million in security and maintenance fees paid in cash during FY2023.
“Based on the independent assessment, it is recommended to reclassify the factory maintenance fee as property, plant and equipment in accordance with MFRS 116, due to its contribution to extending the asset’s useful life. The cash bills, letter acceptance and payment vouchers prepared by Annum EPCC with cash receipt acknowledgement by vendor, pertaining to the security and maintenance fees, were made available for review,” said Annum.
The previous auditor also reported as being unable to verify the balances from the consolidated worksheets of six subsidiaries — Annum M3 Sdn Bhd, Annum Builder Sdn Bhd, Annum Land Sdn Bhd, IJ Ventures Sdn Bhd, Annum IBS Technology Sdn Bh, and Crystal Sentral Sdn Bhd — which were part of the company's financial statements for the period ended June 30, 2023. These subsidiaries were disposed of or deemed disposed of during the financial period.
Other operating expenses for the company included a loss of RM34,119 on the disposal/deemed disposal of a subsidiary and a loss of RM13.58 million on the derecognition of subsidiaries.
“Based on the independent assessment, the gain or loss calculations on disposal/deemed disposed subsidiaries aligned with the figures in the audited financial statements,” Annum said in its filing.
Annum's share price, which has fallen over 38% year-to-date, closed unchanged at 5.5 sen on Monday, valuing the company at RM12.5 million.