Serba Dinamik: Professional scepticism during audit process has limitation

AUDITORS can exercise some elements of professional scepticism during their audit, but this mere scepticism must be communicated to their clients for resolution of the matters.

Moreover, in the views of Serba Dinamik Holdings Bhd which is embroiled in an auditing saga with its external auditors KPMG PLT, mere scepticism is not sufficient for auditors to pre-maturely report to the detriment of the company and the market.

In reference to the media statement dated June 23 by the Securities Commission (SC), particularly on the point that auditors have a statutory obligation to immediately report to the SC if they reasonably believe that there are any matters which may constitute a breach or non-performance of any requirement of securities laws, Serba Dinamik further noted:

“We however wish to point out that auditors in performing that duty has the highest onus to exercise that professional opinion, that there has in fact been a breach or non-performance of the identified laws, not a mere reasonable believe on their part that, that was so.”

The oil & gas (O&G) outfit nevertheless thanked the SC and sister market regulator Bursa Malaysia “for not delving into the facts of this case which facts are still at large” in their recent statement.

Meanwhile, the Malaysian Institute of Corporate Governance (MICG) deemed KPMG’s resignation as Serba Dinamik’s external auditor as not surprising given the decision made by the company to commence legal proceedings against the Big-Four accounting firm.

“It is clear the relationship which should exist between client and auditor has broken down,” opined MICG’s deputy president David W Berry in a statement.

“KPMG cannot complete its audit work to an acceptable professional standard in this climate nor can Serba Dinamik entertain a continued relationship.”

With regard to how he foresees such development transpiring moving forward, Berry pointed to the fact that Serba Dinamik had initially announced that it would appoint BDO to conduct an independent review of the audit matters raised by KPMG.

David W Berry

“Subsequently, Serba Dinamik named EY and said it was agreeing terms. Most recently, Serba Dinamik has said it was reviewing the need to appoint EY,” he noted.

“Whatever choice is made, a reputable audit firm with established international affiliations will be needed to complete the statutory audit for the 2020 financial year. In this process, the audit matters raised by KPMG will have to be addressed.”

Asked if it is wise for Serba Dinamik to take legal action against its external auditor for its alleged negligence, Berry said MICG cannot comment on the facts or the virtues of the case as the company has formally commenced legal proceedings against KPMG which has said it will vigorously defend the case.

“However, it is most unusual for a PLC to take such action against its external auditor, particularly before the audit is complete and the company’s earlier proposed independent review has commenced, and is to be regarded as a regrettable decision – a view we believe will be shared by the regulators,” he argued.

“It is to be hoped a way forward is agreed soon and the outcome embellishes Malaysia’s reputation as a financial market which exemplifies best practices in corporate governance.”

At 11.47pm, Serba Dinamik was down 6 sen or 11.21% to 47.5 sen with 191.42 million shares traded, thus valuing the company at RM1.77 bil. – June 25, 2021

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