Bursa Malaysia Securities Berhad [Registration No.: 200301033577 (635998-W)] (Bursa Malaysia Securities) has publicly reprimanded Harn Len Corporation Bhd (HARNLEN) and 5 of its directors for breach of Bursa Malaysia Securities Main Market Listing Requirements (Main LR).
HARNLEN was publicly reprimanded for breach of paragraph 9.35A(1)(a) of the Main LR for failing to ensure that the company’s 4th quarterly report for the financial year ended (FYE) 31 December 2019 (QR Dec 2019) announced on 27 February 2020 took into account the adjustments announced on 30 June 2020.
Paragraph 9.35A(1)(a) of the Main LR states that a listed issuer must ensure that the announcement made was factual, clear, unambiguous, accurate, succinct and contains sufficient information to enable securities holders and investors to make informed investment decisions.
HARNLEN was also required to review and ensure the adequacy and effectiveness of its financial reporting function including its finance and accounting resources and carry out a limited review on the company’s quarterly report submission. The limited review must be performed by the company’s external auditors for four quarterly reports commencing no later from the quarterly report for the financial period ended 31 December 2021. In addition, HARNLEN must ensure that the 5 directors and its relevant personnel attend a training programme in relation to compliance with the Main LR pertaining to financial statements.
5 directors of HARNLEN were publicly reprimanded for breach of paragraph 16.13(b) of the Main LR for permitting, either knowingly or where they had reasonable means of obtaining such knowledge, the company to commit the breach of paragraph 9.35A(1)(a) of the Main LR as follows:-
- Low Quek Kiong
Managing Director
- Loh Wann Yuan
Senior Independent Non-Executive Director & Audit Committee Chairman
- Brig. Jen. (B) Dato’ Ali Bin Hj Musa
Independent Non-Executive Director & Audit Committee member
- Law Piang Woon
Independent Non-Executive Director & Audit Committee member
- Mohamed Akwal Bin Sultan Mohamad
Independent Non-Executive Director & Audit Committee member
The finding of breach and imposition of the above penalty on HARNLEN 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 HARNLEN and its shareholders/investors, the roles, responsibilities, knowledge and conduct of the directors and the fact that HARNLEN had previously committed similar breach in respect of the deviation between the unaudited and audited results for the FYE 31 December 2016 (Previous Deviation Breach).
Bursa Malaysia Securities views the contravention seriously as the requirement for listed companies to submit financial statements that are factual, clear, unambiguous, accurate, succinct and contains
sufficient information to enable investors to make informed decisions are fundamental obligations of listed companies and of paramount importance in ensuring a fair and orderly market for securities traded on Bursa Malaysia Securities and necessary to aid informed investment decisions.
BACKGROUND
HARNLEN had reported an unaudited loss attributable to owners of the company of RM30.055 million in its QR Dec 2019 announced on 27 February 2020. However, HARNLEN had subsequently reported an audited loss attributable to owners of the company of RM58.291 million in its audited financial statements for the FYE 31 December 2019 (AFS 2019) announced on 30 June 2020 which represented a difference of RM28.23 million or 94% between the QR Dec 2019 and AFS 2019.
The adjustments were mainly due to the impairment loss on property, plant & equipment (PPE) and right-of-use of assets for Masranti Sebangkoi Sdn. Bhd. and Harn Len Reality (Serian) Sdn. Bhd. as set out in the company’s announcement on 30 June 2020.
The external auditors had during the Audit Committee meetings on 26 November 2019 and 26 February 2020 highlighted that the carrying amounts of the PPE were identified as one of the significant risks as these were quantitively material to the Group’s financial statements and there were impairment indicators. However, HARNLEN had failed to take reasonable steps to address/resolve the impairment issues with the external auditors and ensure the accuracy of the QR Dec 2019 prior to its announcement on 27 February 2020.
The adjustments were made as the external auditors were unable to obtain sufficient appropriate audit evidence on the recoverable amount of the assets particularly to ascertain the appropriateness of the method of valuation and reasonableness of the assumptions adopted by the external valuer in the valuation report or the company’s discounted cash flow computation on the value in use of the assets. In addition, the company’s discounted cash flow computation contained formula error.
There was blatant failure/neglect/disregard by the directors in the discharge of their duties to ensure that the QR Dec 2019 complied with paragraph 9.35A(1)(a) of the Main LR where:-
(a) Low Quek Kiong, the Managing Director primarily responsible for the financial management of the company for the FYE 31 December 2019 had failed to demonstrate reasonable steps taken to discharge his duties to supervise, monitor and ensure the audit issues including the impairment of PPE were addressed/resolved with the external auditors prior to his approval and announcement of the QR Dec 2019. He had abdicated his duties and merely relied on the financial controller/chief financial officer, the Audit Committee and/or external auditors to report any concern/exception.
(b) Loh Wann Yuan, Brig. Jen. (B) Dato’ Ali Bin Hj Musa, Law Piang Woon and Mohamed Akwal Bin Sultan Mohamad were members of the Audit Committee who have the specific function under paragraph 15.12(1)(g) of the Main LR to review the quarterly results and year-end financial statements, before the approval by the Board of Directors, focusing particularly on (i) changes in or implementation of major accounting policy changes; (ii) significant matters highlighted including financial reporting issues, significant judgments made by management, significant and unusual events or transactions, and how these matters are addressed; and (iii) compliance with accounting standards and other legal requirements.
Despite their knowledge of the audit issue highlighted by the external auditors, they had proceeded to approve the QR Dec 2019 without undertaking any enquiry and/or reasonable assessment into the valuations and/or the management’s computation on the value in use of the assets.
The directors’ failure in the discharge of their duties was unacceptable particularly as they were the directors at the material time of the Previous Deviation Breach which led to a public reprimand being imposed on HARNLEN on 11 April 2018.
