Some Comments From A Wise Man

Good Article Sharing 2021

Some Comments From A Wise Man

lkongwee

Publish date: Thu, 15 Jul 2021, 10:59 PM

PART 1 :

WHY ARBB is NOT THE SAME AS SERBA DINAMIK’S TROUBLES? CORPORATE GOVERNANCE PERSPECTIVE.

MY BACKGROUND

I am qualified Chartered Accountant >20 years and ex-ACCA lecturer in Corporate Governance , Advanced Audit and Strategy. Now an entrepreneur in my rapidly expanding Gig Economy Biotechnology platform seeking Flexi-hour business partners. My 2 sen worth is possibly helpful to our readers.

Reloyee is right that the market is skeptical about ARBB business model with Receivables parked under Non Current Assets. Highly unusual. (Source: https://klse.i3investor.com/blogs/reloyeeanalysis/2021-07-07-story-h15...)

WHY VAST MAJORITY OF PUBLIC LISTED COMPANIES FINANCIAL STATEMENTS ARE RELIABLE?
We hear stories about Serba Dinamik fiasco. Can you name 10 such companies involved in alleged mal-practice or even alleged fraud in 2020/21? Remember that Serba Dinamik, thusfar, has no convictions in court meaning you are innocent until proven guilty. There are over 1400 Public listed companies in Bursa Malaysia. With 1 black (unpopular) sheep, does it mean that all 99.98% Public listed companies like Carlsberg, Maybank, YTL, Nestle are distrusted? Certainly not.

Part 2:

WHY HAVE REASONABLE TRUST IN ARBB’S FINANCIAL PERFORMANCE?
As a public listed company, ARBB is no different and scrutinised or watched by authorities such as
= Independent Non Executive Directors
= Bursa Malaysia
= Licensing authorities
= External Auditors
= Institutional shareholders
= retail shareholders
= Anti- Corruption Agency
= Transparency on need to disclose its reports to public
= 3rd party & Independent Awards to CEO Larry and ARBB by Prestigious APEC (Asia Pacific Enterprise Award) in 2020. (Source: https://apea.asia/regional/hall-of-fame-2020/corporate-excellence-cate... )

PART 3

WHY RSM’S AUDIT REPORT WILL IMPROVE YOUR CONFIDENCE?
RSM is major mid size International Audit firm who reviewed ARBB Financial statements for year end Dec 2020. There is a new audit report format that requires Auditors to focus on Material Risky Items and you guessed it right - the Receivables of >1 year carrying value at RM102m as at Mac 2021 certainly arise.
RSM is required by ISA (International Standards of Auditing) to perform additional audit investigation that the material risky item is fairly stated ie it is not fictitious or that is should it be classified as bad debts in view that customers have not paid for over 1 year.

PART 4

WHAT ADDITIONAL AUDIT PROCEDURES OR EVIDENCES THAT RSM UNCOVER AND TRANSPARENTLY REPORTED ON?
RSM provided 5 disclosures on why they opined that the receivables are reliable valuation:
1. Developed understanding of the design and implementation of controls associated with the monitoring of outstanding receivables and deposits impairment calculation.
2. Developed understanding of significant credit exposures which were significantly overdue or deemed to be in default through analysis of ageing reports.
3. Obtained confirmation of balances from selected debtors and suppliers.
4. Checked subsequent receipts, customers/suppliers correspondence, and consider level of activity with customers/suppliers and management’s explanation on recoverability with significantly past due balances.
5. Assessed the reasonableness and calculation of expected credit losses as at end of the reporting period.
(Source: ARBB Annual Report 2020)
No External auditors can give absolute or 100% confirmation but gives reasonable relative assurance that the balance are valid but it increases our investors’ confidence because they perform the audit procedures independently or without interference from Executive Directors and manages.

PART 5

STRANGELY, WHY DID RSM DECIDE TO RETIRE AS ARBB’S AUDITORS FOR COMING 2021?
Most likely reason is RSM is a profit seeking firm. Look at the amount of audit procedures performed above meaning the resources on time and labour incurred. RSM partners possibly perceive the job is profitable enough. Bear in mind, External Auditors CANNOT cut corners to reduce costs and protect profit margins. They are liable to lawsuits and major accounting firms went bankrupt such as Arthur Andersen.

PART 6 :

KEY TAKEAWAYS

To be concerned about the Receivables is certainly justified. After you review audit disclosures, this should reduce our fears, relatively speaking.

As investors, you look at the business model with wide moats and review the Corporate Governance before you invest.

PART 7 (FINAL)

Few questions before investing:
1. Is Info Tech the way forward in this ecnomic times in next 10 years?
2. Does ARBB offer unique services that rivals are unable to copy?
3. Will you expect Work at Home, Internet of things using Handphones, Auto gates, Auto Airconds, Automobiles, Auto Microwaves as the growing trend in next 10 - 15 years.

My humble opinion, ARBB Financial statements in 2020 are legit based on above findings.

I quote our generation’s most famous greatest investors:

You want to buy a wonderful business at reasonable price and not buy reasonable business at wonderful price. (Warren Buffett, 1997)

If You Can't Stomach 50% Declines in Your Investment You Will Get the Mediocre Returns You Deserve (Charles Munger, 2008)

May you profit from investing in your personal investing knowledge and Stock Market.

Disclosure: I am not working for ARBB and an entrepreneur seeking potential Business partners in Asset Light Business model. I am long on ARBB PA and may add my position in the next 72 hours from the time of this writing.

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