(Incorporated in Malaysia)

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ABC SDN. BHD.

Report on the Financial Statements
We have audited the financial statements of ABC SDN. BHD., which comprise the
balance sheets as at 30 September 2010 of the Group and of the Company, and
the income statements, statements of changes in equity and cash flow
statements of the Group and of the Company for the year then ended, and a
summary of significant accounting policies and other explanatory notes, as set
out on pages X to XX.
Directors’ Responsibility for the Financial Statements
The directors of the Company are responsible for the preparation and fair
presentation of these financial statements in accordance with Financial Reporting
Standards and the Companies Act 1965 in Malaysia. This responsibility includes:
designing, implementing and maintaining internal control relevant to the
preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit in accordance with approved standards on
auditing in Malaysia. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance
whether the financial statements are free from material misstatement. An audit
involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on our
judgment, including the assessment of risks of material misstatement of the
financial statements, whether due to fraud or error. In making those risk
assessments, we consider internal control relevant to the Company’s preparation
and fair presentation of the financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control. An
audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by the directors, as well as
evaluating the overall presentation of the financial statements.
We could not obtain sufficient and appropriate audit evidence in the course of our
audit and therefore an adverse opinion is expressed.
Basis for Adverse Opinion
1. As disclosed in Note XX to the financial statements, the accounting records of
the Company and its subsidiary companies were destroyed by the previous
management. The current management attempted to reconstruct the Company’s
accounting records based on information and documents available to them and
also based on the best estimates made by the directors, in situations that such
estimates are required to be made. The Company’s financial statements produced
using this basis has been provided to us for audit. However, the current
management is unable to reconstruct the accounting records of its subsidiary
companies. As a result, no consolidated financial statements have been prepared
and this is not in compliance with FRS 127 Consolidated Financial Statements
which requires the Company as a parent entity to prepare consolidated financial
statements.
2. We were unable to obtain sufficient and appropriate audit evidence as to the
balances of trade & other payables and borrowings of the Company due to lack of
supporting documentary evidence made available to us for our verification due to
the matters mentioned in paragraph 1 above.
3. As disclosed in Note XX and Note XX to the financial statements, the
Company reported a total borrowings of RM158,653,000 (2009 –
RM167,500,000) and the relevant interest accrued of RM23,567,000 (2009 –
RM14,573,200). As disclosed in Note XX to the financial statements, the Company
provided corporate guarantees of RM56,789,000 (2009 – RM56,789,000) to
licensed banks in respect of the bank borrowings facilities granted to its
subsidiary companies. The subsidiary companies have defaulted their repayment
obligation and therefore the Company as the issuer of the corporate guarantees,
is required to reimburse the licensed banks in respect of the banks’ losses
suffered.
The financial statements of the current year and of the previous year did not
include any provision for penalty interest and financial guarantees due by the
Company to the licensed banks. This is not in compliance with the requirements
of FRS 137 Provisions, Contingent Liabilities and Contingent Assets which require
such provision for penalty interest and financial guarantees to be recognised in
the financial statements of the Company.
We are therefore unable to satisfy ourselves that the total bank borrowings and
the relevant liabilities reflected in the financial statements are fairly stated.
4. To date of this report, we have not received replies from certain licensed
banks to our letters requesting these banks to confirm the bank balances and any
related liabilities (including contingent liabilities, if any). There were no other
alternative means for us to carry out the relevant verification work to confirm the
completeness of bank balances recorded in the financial statements and any
related liabilities or contingent liabilities of the Company.
5. The relevant tax returns of the Company from 2005 to 2009 have not been
prepared and therefore no tax returns have been submitted to the Inland
Revenue Board of Malaysia and this has violated the requirements of the Income
Tax Act, 1967 in Malaysia to submit such tax returns within the stipulated time
frame and hence penalty on the outstanding tax payable, if there is any tax
payable, and also penalty for non-filing of tax returns are expected to be imposed
on the Company.
6. Due to the matters highlighted in paragraphs 1 to 5, we are unable to satisfy
ourselves that all the relevant tax payables, penalties and their related disclosure
notes have been included in the financial statements of the Company and
disclosed accordingly.
7. We have expressed an adverse opinion in our audit report in respect of our
audit of the previous financial year’s financial statements because of similar
matters described in paragraphs 1 to 6 above.
Adverse Opinion
Because of the matters described in the Basis for Adverse Opinion paragraphs
above, we could not express an opinion on the consolidated financial statements
as no such financial statements have been prepared and made available for our
audit, and we are of the opinion that the financial statements of the Company do
not give a true and fair view of the financial position of the Company as at 31
December 2010 and of its financial performance and cash flows for the year then
ended in accordance with the Financial Reporting Standards in Malaysia.
Report on Other Legal and Regulatory Requirements
In accordance with the requirements of the Companies Act, 1965 in Malaysia, we
report that in our opinion:
a) The accounting and other records have not been properly kept as
described in Basis for Adverse Opinion above. However, the registers required by
the Act to be kept by the Company have been properly kept in accordance with
the provisions of the Act.
b) The financial statements of the subsidiary companies have not been
prepared due to the matters highlighted in paragraph 1 of Basis for Adverse
Opinion above and no consolidated financial statements have been prepared and
provided to us for our audit. Therefore, we are unable to comment and satisfy
ourselves as to the appropriateness of the financial statements of the subsidiary
companies included in the consolidated financial statements.
Other Matters
This report is made solely to the members of the Company, as a body, in
accordance with Section 174 of the Companies Act 1965 in Malaysia and for no
other purpose. We do not assume responsibility to any other person for the
content of this report.
[ AF : 0012345 ] [ 123/01/13(J) ]
AUDITORS & AWANG BIN
ASSOCIATES SALLEH
Chartered Accountants Chartered
Accountant
Wonderland
Dated: