Bursa Malaysia Securities Publicly Reprimands And/or Fines Sarawak Consolidated Industries Berhad And Two (2) Directors

Bursa Malaysia Securities Berhad [Registration No.: 200301033577 (635998-W)] (Bursa Malaysia Securities) has publicly reprimanded Sarawak Consolidated Industries Berhad (SCIB) and 2 of its directors for breach of the Bursa Malaysia Securities Main Market Listing Requirements (Main LR).  In addition, the 2 directors were imposed a fine of RM27,000 each.

SCIB was publicly reprimanded for breach of paragraph 9.23(1) of the Main LR for failing to issue the annual report that included the audited financial statements together with the auditors’ and directors’ report for the 18-months financial period ended 30 June 2021 (AR 2021) on or before 31 October 2021. SCIB only issued the AR 2021 on 17 January 2022, after a delay of approximately 2 months.

SCIB was also required to review and assess the adequacy and competency of the company’s finance and accounting resources and adequacy, comprehensiveness, implementation and effectiveness of the company’s policies and procedures in respect of financial reporting.

2 directors of SCIB at the material time had breached paragraph 16.13(b) of the Main LR for permitting the company to commit the breach and were imposed the following penalties:-

The finding of breach and imposition of the above penalties on SCIB and its directors were made pursuant to paragraph 16.19 of the Main LR upon completion of due process and after taking into consideration all facts and circumstances of the matter including the materiality of the breach, impact of the breach to SCIB and shareholders/investors and the roles, responsibilities, knowledge, involvement and conduct of the directors.

Bursa Malaysia Securities views the breach seriously as timely submission of financial statements is a fundamental obligation of listed companies and is of paramount importance in ensuring an orderly and fair market for securities traded on Bursa Malaysia Securities and necessary to aid informed investment decisions.

Bursa Malaysia Securities has also reminded SCIB and its Board of Directors (BOD) of their responsibility to maintain the appropriate standards of corporate responsibility and accountability to its shareholders and the investing public.

BACKGROUND

SCIB’s failure to issue the AR 2021 within the stipulated timeframe was mainly due to the failure to address/resolve the audit issues on revenue recognition and recoverability of receivables from overseas construction contracts/projects which had been raised by the company’s external auditors since November 2020.  SCIB had subsequently re-classified the transactions relating to the overseas construction contracts/projects by disclosing the net amount due to the Group and to the company of USD15,670,756 (RM64,223,196) and USD4,246,080 (RM17,847,637) respectively as project management fee.  Consequently, adjustments were made to the financial statements which included a reduction of the Group’s revenue from RM748,551,678 (based entirely on the construction contracts previously) to RM93,267,844, the details of which were disclosed in Note 22 to the audited financial statements (AFS 2021) announced on 31 December 2021.  The external auditors had issued a Qualified Opinion on the AFS 2021 where the external auditors were unable to obtain sufficient appropriate audit evidence of the overseas construction contracts/projects and all the related adjustments.

There was also a change of external auditors where the previous external auditors’ resignation on 23 July 2021 was due to the action of the company in requesting for the auditors’ voluntary resignation.  Further, despite being aware of the tight timeline and challenges to complete the audit and issue the AR 2021 by the due date of 31 October 2021, there was lack of expeditious steps by SCIB to source for and/or appoint a new auditor, who was only appointed on 6 September 2021 i.e. approximately 1.5 months after the previous external auditors’ resignation or 2 months before the due date.    

The 2 directors, being Chairman and Group Managing Director of the company, were in a position to ascertain, address and/or resolve the audit issues to ensure timely submission of the AR 2021 in view of their roles, responsibilities, knowledge and involvement in the overseas construction contracts/projects but had failed in the discharge of their duties in this respect. The Group Managing Director had also failed to ensure that the company appointed a new external auditor expeditiously after the resignation of the previous external auditors.