INVESTORS are by nature astutely biased in their very own way, henceforth they can often be divided into two extremes.
The Serba Dinamik Holdings Bhd saga with its external auditor KPMG PLT provides an ideal scenario to gauge the varying degree of biasness possessed by humans although nobody – at this juncture – can be faulted for their respective stance or judgment.
For example, AmResearch has every reason to remain cautious on the chances of a successful legal suit by the global integrated oil & gas (O&G) service provider against a globally recognised or Big-Four accounting firm.
“Until the independent review is completed together with the audit finalisation and issuance of the group’s annual report by Oct 31 this year, we expect negative market speculations to continue percolating and impact the share price throughout the process which could last up to four more months,” opined analyst Alex Goh in a company update.
Recall that Serba Dinamik had on Tuesday (June 22) filed a civil suit against its external auditor KPMG over damages of RM4.9 bil (2.1 times the company’s market capitalisation) stemming from the plunge in its market cap along with loss of confidence from customers, investors and financial institutions.
On the flip side
On another extreme, let’s not forget that Serba Dinamik, too, will not sit down behaving like a lame duck.
With RM3.78 bil or 63% of its market capitalisation having been wiped out since May 31, it only makes valid sense that Serba Dinamik, too, has its ‘artilleries of sorts’ for self-defence.
After all, many investors – from retailers to institutional funds – had incurred substantial losses judging merely by its 52-week share price range of 54 sen (intraday low on June 14) to RM2.09.
To put Serba Dinamik’s legal suit in perspective, the company has clarified that it is not suing KPMG for submitting a damning report to the Securities Commission (SC) against it, but for the way the external auditors have conducted their audit.
Ironically, however, Serba Dinamik is taking KPMG to task for a breach of Section 320 of the Capital Market & Services Act 2007 (CMSA) even as Section 320(2) of the CMSA stipulates that the auditor will not be liable to be sued for any report submitted by the auditor in good faith and in the intended performance of any duty imposed on the auditor.
“It is, therefore, noteworthy to acknowledge that Section 320(1) of the CMSA 2007 requires that an auditor form a professional opinion that there has been a breach before they can make a report to SC,” a company source told FocusM.
“In this regard, KPMG has in our view performed a substandard auditing work for they failed to form a professional opinion on the matter and therefore could not have acted in good faith – in fact they acted in bad faith.”
As such, the source said Serba Dinamik is left with no better option than to file a writ and statement of claim against KPMG on the grounds of professional negligence, breach of contract and breach of statutory duty.
“It is no exaggeration that KPMG did not even have a sit down session with the management to at least try to resolve the issue,” lamented the source.
“Despite being the company’s auditors for seven years, they chose the easy route out in discharging their responsibilities by asking Serba Dinamik to hire a forensic team and by going directly to the regulators. Perhaps this stems from the issue of their resources.”
Pressed for examples, the source named them as follows:
- Not doing proper verifications;
- Not engaging with the auditee (Serba Dinamik);
- Not taking into account responses by auditee after more than 60 days have lapsed; and
- Blaming Serba Dinamik over their own mistakes and negligent acts and then refusing to complete audit.*
“Given the above justification, Serba Dinamik’s push to replace KPMG is not something drastic as both Petron Malaysia Refining & Marketing Bhd and Malaysia Building Society Bhd have recently appointed in PricewaterhouseCoopers PLT (PwC) as their auditors in place of KPMG,” added the source. – June 23, 2021
* Below are some specific instances where Serba Dinamik has swiftly reacted to the various ‘loopholes’ identified by KPMG:
