SOMEHOW bordering the line of etymology – the study of the origin and history of words – Serba Dinamik Holdings Bhd was engaged in a legal entanglement with its special independent reviewer Ernst & Young Consulting Sdn Bhd (EY Consulting) on the true meaning of “qualified auditor”.

At the High Court yesterday (Feb 16), counsel to the global integrated oil & gas (O&G) service provider Mak Lin Kum argued that EY Consulting as a consulting firm had not been recognised by the Finance Minister as an auditor.

Henceforth, EY Consulting had misrepresented itself as an auditor within the meaning of Paragraph 2.24 of the Main Market Listing Requirements (MMLR).

Mak was referring to a letter from EY Consulting dated July 2, 2021 which referred to Paragraphs 2.23 and 2.24 of the MMLR to conduct the SIR of the statutory audit by KPMG PLT who was Serba Dinamik’s former external auditor.

He further contended that while Ernst & Young PLT (E&Y PLT) is a recognised auditor, EY Consulting is not as it is not registered with the Audit Oversight Board (AOB).

“My client is taking issue on that and hence, questioned whether EY Consulting should be allowed to reveal the FFU (fact-finding update) and other findings in the first place,” Mak was cited by theedgemarkets.com as saying. “Serba Dinamik contends that the appointment of EY Consulting should be declared null and void and ab initio (from the beginning).”

Paragraph 2.24 states that “where the exchange is of the opinion that a breach of these requirements may have occurred and the appointment of a special auditor is necessary, the exchange may instruct the listed issuer, any of its subsidiaries or both, as the exchange may direct. Any cost incurred as a result of the appointment of the special auditor must be borne by the listed issuer”.

According to Paragraph 2.24, a special auditor means any auditor other than the statutory auditor of the listed issuer appointed pursuant to the Companies Act 2016 or in relation to a foreign corporation, pursuant to the relevant laws of the place of incorporation.

Counter argument

In its rebuttal, EY Consulting’s counsel Gopal Sreenevasan pointed out that Serba Dinamik has been aware from day one that Muhammad Syahrizal Abd Rahim who is a partner in E&Y PLT and a registered auditor would be conducting the special independent review (SIR) that was required.

Gopal further insisted before Justice Datuk Ahmad Fairuz Zainol Abidin in an online proceeding that the term special auditor within Paragraph 2.24 of the MMLR does not necessarily mean an auditor per se as the scope is wider or has nothing to do with audit or financial numbers or accounts or financial statements.

After all, EY Consulting had complied with the requirements to be an auditor when Syahrizal was engaged whereby it ensured that the existing auditor is not a special reviewer from KPMG.

Gopal therefore expressed surprise as to why there had not been any issues regarding EY Consulting’s status prior to the release of the FFU. He also claimed that the litigation by Serba Dinamik was due to the company not liking the contents of EY Consulting’s FFU.

Justice Ahmad Fairuz has fixed March 8 to deliver his judgment on whether the contract between Serba Dinamik and EY Consulting should be declared null and void and hence, whether an injunction should be imposed on the firm from releasing the findings. He will deliver his decision via e-mail, according to theedgemarkets.com.

The moral of the story – if there is one – is that chief financial officers (CFO) public listed companies (PLCs) or audit committees of public listed companies (PLCs) should be clear about them background of the auditing firms that they appoint and not on the qualification per se of the individual auditor who is spearheading an auditing task.

This shall at least cover up any technicality loophole in the event of any future legal dispute. – Feb 17, 2022.

https://focusmalaysia.my/court-chronicle-serba-enlightens-the-world-on-what-constitute-a-qualified-auditor/