PETALING JAYA: Zelan Bhd’s external auditor, MM. Al Jafree Salihin Kuzaimi PLT, expressed an unqualified opinion with significant uncertainty related to going concern in its report of the independent auditors on the group financial statements for the year ended December 31, 2020 (FY20).
An excerpt from the report revealed that as of that date, the current liabilities of the group and the company exceeded current assets by RM 175.4 million (2019: RM 145.6 million) and RM 18.6 million. (2019: RM18.8 million) respectively.
“These events and conditions, as well as other elements, indicate that there is significant uncertainty which may cast significant doubt on the ability of the group to continue to operate. Our opinion is not changed in this regard, ”the report states.
The audit first highlighted the recoverability of the balance to be received from an owner of the group’s project in Abu Dhabi.
The directors believe that the group is able to recover the arbitration award. The administrators assessed the book value of the total balance of receivables taking into account the timing and duration of the judicial execution proceedings against the project owner based on the advice of the external lawyer. Following the directors’ assessment, the group has since recognized the arbitration award as a claim amounting to AED 222.5 million in fiscal year 20.
“There is a risk of inadmissibility of the group’s significant debts resulting from the arbitration award due to the lack of financial information from the contracting authority and the premature state of legal proceedings initiated by the group.
“Due to the inherent uncertainty in determining the creditworthiness of the project owner, which forms the basis of the collectability assessment, this is one of the main areas of judgment on which our audit focuses. . “
Second, the audit highlighted the recognition of revenue and costs from its construction contracts, for which the group recognized revenue and gross margin from construction contracts of RM 25.3 million and RM 8.9 million. of RM respectively for fiscal year 20.
“Accounting for revenue from a construction contract is inherently complex and we focused on this area because there are significant management estimates and judgments involved in determining the stage of completion; the extent of construction costs incurred to date; estimated total construction costs; and the need to estimate the observed liquidated damages on projects whose estimated completion dates are beyond the contractual completion dates. “
Zelan said that the validity of the going concern assumption depends, among other things, on the group’s ability to generate sufficient cash from its operations; monitor and manage the progress of its existing construction projects.
“As of the date of this report, there is no reason for the directors to believe that the group will not generate enough cash from its operations in the next 12 months from the closing date to repay existing borrowings, complete ongoing projects and meet with working capital. Consequently, the group’s financial statements do not include any adjustment relating to the recoverability and classification of the amounts of recorded assets or to the amounts and classification of liabilities that might be necessary if the group is not able to continue to operate, ”Zelan added.