Nam Fatt's Massive Deviation Of Accounts

Saw the following news article: Nam Fatt revises FY09 statements

Sounds like an innocent article but I decided to read anyway.

• Friday May 7, 2010
  Nam Fatt revises FY09 statements
  
  PETALING JAYA: Construction firm Nam Fatt Corp Bhd, whose auditors Delloitte & Touche had had back from expressing an opinion over the financial statement for the year ended Dec 31, 2009 (FY09), has released a statement showing a deviation between the net loss of the unaudited fourth-quarter results and the audited FY09 statements.
  
  The company said the deviation of 193% between the quarterly and FY09 results was due to provisions and allowances as well as a revision of profit estimates of the construction division.

Deviations of 193%????

That's a huge, huge deviation, yes?

And they did not even bother to show what any kind of proper figures. What la!

I then searched Bursa website for that announcement. This is the excel file attached: here

Net Loss as per Unaudited 4th Quarter Results was 184.987 million.

Net Loss as per AFS 2009 was 541.683 million!!!!!!!!!!!!!!!

What on earth is happening here????

And then I remembered Nam Fatt is now a PN17 company and I searched for some recent news clip on this company.

• Nam Fatt drops 35% after triggering PN17
  Written by Joseph Chin
  Wednesday, 17 March 2010 11:21
  
  KUALA LUMPUR: Nam Fatt Corp Bhd shares skidded in active trade yesterday after it was placed under Practice Note 17 of the Main Market listing requirements of Bursa Malaysia Securities Bhd.
  
  It closed 6.5 sen or 35% lower at 12 sen with nearly 40 million shares done after falling to an intra-day low of 11 sen. Nam Fatt had failed to meet its principal and interest payment of RM13.22 million due and payable on Monday following an asset sale agreement it had entered into on Dec 4, 2007 with Bank Kerjasama Rakyat Malaysia Bhd.
  
  Nam Fatt will have to undertake a regularisation plan to be submitted within 12 months to the relevant authorities. It will also have to announce, within three months, whether the plan will result in a significant change in the business direction or policy of the company.
  
  Nam Fatt faces trading suspension and the prospect of being delisted.
  
  Meanwhile, Malaysian Rating Corp Bhd (MARC) yesterday downgraded its ratings on Nam Fatt’s RM250 million Islamic commercial paper/Islamic medium-term notes programme to MARC-4ID/CID from MARC-3ID/BBB+ID. The ratings continue to be placed on MARCWatch Negative where it has been since Dec 30, 2009.
  
  “The rating action was taken following Nam Fatt’s failure to meet its principal and interest payment of about RM13.2 million to Bank Kerjasama Rakyat on March 15, 2010,” it said.
  
  MARC said the bank loan default would likely trigger an immediate demand for repayment on all its other credit facilities though it had yet to receive a notice from the trustee that Nam Fatt’s Islamic commercial paper (ICP) had experienced an event of default. Additionally, the trustee has yet to declare an acceleration of maturity.
  
  The ratings agency also said Nam Fatt had outstanding ICPs of RM130 million, of which RM40 million and RM90 million were specifically used to fund Syarikat Perumahan Nasional Bhd’s (SPNB) low- to medium-cost housing project in Tumpat, Kelantan and Thailand’s National Housing Authority’s low-cost apartment project in Bangkok, respectively. Of the outstanding ICPs, RM80 million is due on April 6, 2010.
  
  This article appeared in The Edge Financial Daily, March 17, 2010.

Earlier this month on Star Business: Eight areas of concern cast doubt on Nam Fatt

• Tuesday May 4, 2010
  Eight areas of concern cast doubt on Nam Fatt
  By TEE LIN SAY
  
  Deloitte & Touche unable to express opinion on builder’s financial statements
  
  PETALING JAYA: There are eight significant areas of concern that prevent auditors Deloitte & Touche from expressing an opinion on Nam Fatt Corp Bhd’s financial statements.
  
  These include the uncertainty relating to Nam Fatt as a going concern, the inability to ascertain the fairness of provisions for foreseeable loss on contracts, and the uncertainty of allowances for doubtful debts and other receivables.
  
  “The audited financial statements of certain foreign subsidiary companies and the Sudan branch of a subsidiary company were also not available,” Deloitte clarified.
  
  As for the material uncertainties which cast significant doubt on the ability of Nam Fatt and the group to continue as a going concern, Deloitte said this was due to Nam Fatt’s announcement on it being classified as a PN17 company.
  
  Apart from these reasons, the operational losses incurred by the company and the group which resulted in the company having a capital-deficiency position, as well as the group and the company’s current liabilities which have exceeded its current assets also cast material uncertainties .
  
  It certainly is troubling times for construction group Nam Fatt after it defaulted on some loans and made an operational loss of some RM560mil in the year to Dec 31, 2009.
  
  As at Dec 31, Nam Fatt had a capital deficiency of RM35.2mil and its current liabilities exceeded current assets by RM201.6mil and RM117.1mil at the company and group levels respectively.
  
  Malaysian Rating Corp (MARC) has been continuously downgrading Nam Fatt’s bonds, with its latest downgrade to D on April 6.
  
  MARC downgraded Nam Fatt’s long and short-term ratings on its RM250mil Islamic commercial papers/Islamic medium-term notes (ICP/IMTN) to a D following Nam Fatt’s failure to repay its RM80mil ICPs which matured on April 6, 2010 after being unable to roll over the ICPs.
  
  Nam Fatt has outstanding ICPs of RM130mil.
  
  “Out of this, RM40mil and RM90mil were specifically used to fund the Syarikat Perumahan Nasional Bhd’s low- to-medium cost housing project in Tumpat, Kelantan and Thailand’s National Housing Authority’s low-cost apartment project in Bangkok respectively. Of the outstanding ICPs, RM80mil was due on April 6, 2010,” said an analyst from MARC in his report dated March 16.
  
  On March 16, MARC had already downgraded the bonds a second time, following Nam Fatt’s failure to meet its principal and interest payment of about RM13.2mil to Bank Kerjasama Rakyat Malaysia Bhd.
  
  Since then, Nam Fatt has applied for an ad interim order to restrain its existing creditors from taking further legal action to recover amounts owed by the group.
  
  Nam Fatt had been placed on Negative Watch since Dec 30, 2009.
  
  Nam Fatt officials were not immediately available for comment.

Kosmo Technology Shocking Deviation Of Accounts

Published on 30-04-2008: Kosmo served with notice of demand for repayment of RM52m loan plus interest

• 30-04-2008: Kosmo served with notice of demand for repayment of RM52m loan plus interest
  
  PETALING JAYA: Kosmo Technology Industrial Bhd was served a notice of demand on April 30 by solicitor acting on behalf of EON Bank Bhd for the repayment of loan together with interests payable amounting to RM52.03 million by May 6.
  
  Legal proceedings will be instituted against Kosmo if it fails to repay the loan by the stipulated deadline.
  
  According to Kosmo, the reason for the issuance of the said notice was the failure by the company to service the interest payment due and payable resulting in a situation of default under the facility agreement dated Sept 9, 2005.
  
  "The default herein has also give rise to a possible recall (cross default) of the loan facility amounting to RM30 million granted by RHB Investment Bank Bhd pursuant to a facility agreement dated Jan 8, 2007.
  
  "However, no claim has been received as yet from RHB Investment Bank. Both the loan facilities mentioned above are unsecured term loan facilities granted to Kosmo," added the company's announcement.
  
  Kosmo said it was currently encountering cash flow problems and had been unable to meet its obligations in payment of loans and to creditors.
  
  The company is planning to embark on a debt restructuring exercise to address the claims by the lenders as well as creditors and has initiated discussions with parties involved in claiming against Kosmo.
  
  It expected discussion to take about two to three months before any concrete restructuring plans could be formalised.

Couple days later, the Edge highlighted an article called 12 report accounts deviations in a day and on the Star Bizweek, Erral Oh wrote the following Audit-related issues – a yearly affair and I wrote a blog posting on it, Unaudited and Audited Accounts: UnReal or Real?, and Kosmo Technology was one of the companies mentioned.

This morning, I caught the following news clip, Kosmo: We made a loss in 2007

• KOSMO Technology Industrial Bhd has revised its report card, saying it now made a net loss of RM141.71 million in the year ended December 31 2007. In February, Kosmo announced an unaudited net profit of RM1.4 million on RM38.42 million turnover for the recent year. Audited group turnover is at RM44.18 million, Kosmo told Bursa Malaysia yesterday. The company also said its annual report 2007 will be delayed.

Truly unbelievable!

From a profit of 1.4 million to a net loss of rm141.71 million!

Holy cow!

And Kosmo last traded at 4 sen!

Now take a look at how much Kosmo was trading at 2 years ago!

And here is a close-up on how Kosmo has fared the past one year!

Totally shambolic!

Given the truly incredible massive capital destruction, perhaps the SC should investigate and find out what on earth is happening here and why is there such a massive deviation in their accounts!

Another truly sad day for Bursa Malaysia.

Unaudited and Audited Accounts: UnReal or Real?

Posted on 30th April 2008, And what about Pentamaster? .

The issue about Pentamaster was the massive variation in between audited and unaudited account. It was not pleasant reading.

Yesterday, the Edge carried the following article, 12 report accounts deviations in a day. Yes, Pentamaster was not the only one!

• KUALA LUMPUR: As many as 12 companies, the majority of which are listed on the Second Board, reported deviations between their unaudited and audited accounts for the financial year ended Dec 31, 2007 on Wednesday.
  
  Topping the list by variance size was Main Board-listed Englotechs Holding Bhd, which reported a 720% deviation between its unaudited and audited FY07 profit after tax figures.
  
  Englotechs reported unaudited net profits amounting to RM3.14 million versus the audited RM19.5 million audited net losses reported for the year.
  
  In a filing to Bursa Malaysia, it said the variances were due to a RM14 million provision of doubtful debts and net unrealised foreign exchange losses.
  
  “The cost of research and development has been expensed off due to failure to fulfil the criteria of Approved Accounting Standards. Taxation decrease was due to deferred taxation overprovided,” the company added.
  
  Second Board firm MESB Bhd announced a deviation of 624.3% with its audited accounts showing a net loss of RM561 million against the unaudited RM107 million net profits for the period.
  
  The company attributed the sizeable variance to the change of accounting policy in relation to the recognition of project costs incurred on construction of telecommunication towers.
  
  The project costs, MESB said, had previously been recognised as contract expenses. The company had since changed its policy to discontinue this recognition, the company said.
  
  Eden Inc Bhd, which was in the news early this month for aborting its planned RM120 million Sukuk Ijarah programme, reported a 77% deviation amounting to RM1.23 million and RM281,000 respectively.
  
  It had made a provision of RM233,000 for gain on dilution of interest in a foreign subsidiary, RM1.07 million on preliminary expenses of a foreign subsidiary inadvertently capitalised, RM100,000 in under provision of depreciation and RM10,000 for other provisions.
  
  Another firm announcing significant variance was Thong Guan Industries Bhd, which reported a 42.4% or RM8.84 million difference.
  
  The company reported higher unaudited net profits amounting to RM12 million. It explained that the deviation resulted from a combination of correction of accounting errors (due to a foreign currency translation error), under provision of taxation, overstatement of inventory and other provisions.
  
  Second Board-listed industrial products player PJ Bumi Bhd reported a 41% variance, with its audited net loss widening to RM18.11 million from the unaudited figure of RM12.84 million.
  
  PJ Bumi listed the provision for doubtful debts, renovation and written off office equipment, provision of income tax and tax penalty, and other provisions as reasons for the deviation.
  
  The remaining seven companies, however, reported considerably smaller percentages of deviations in net profits/losses ranging from between 3% and 20%. They are Limahsoon Bhd, Ta Win Holdings Bhd, Rex Industry Bhd, APP Industries Bhd and Fitters Diversified Bhd, CNLT (Far East) Bhd and Frontken Corporation Bhd.

Today's Star Bizweek, there was one brilliant set of commentary made by Erral Oh, Audit-related issues – a yearly affair

Here are some of the major points made.

• So, it seems that there will always be a small percentage of listed companies whose profits need to be adjusted a lot after the auditors have gone through their books. We can say that such cases are the exception, not the rule, but that doesn't quite address the issue.
  
  The excuse we often hear is that the financial statements in the quarterly reports are management accounts and because they have yet to be audited, they should not be taken as final. Also, it's a standard complaint among the companies' management that in this post-Enron era, the auditors are more likely to err on the side of caution in interpreting financial reporting standards (FRS) and they often press for audit adjustments that will slash revenue and profit figures.
  
  But these are weak arguments. To begin with, the management of every listed company knows that their quarterly results are for public consumption. That calls for great care in preparing the management accounts. It's important to get these accounts right from the get-go. (Yeah, responsibility!)
  
  That means grey areas and disputes regarding accounting treatment should be resolved well before the audits commence. These companies have accountants (or chief financial officers, as we call them these days), whose jobs should include keeping abreast with developments in FRS and liasing with the external auditors.
  
  Let's not forget that the FRS are backed by law and apply to all, and there's little room for subjectivity. The auditors have the final say. Hence, when a CEO grumbles about the auditors insisting on provisions, impairments or write-offs, he's pointlessly swimming against the tide.
  
  Of course, companies have been known to switch auditors after battles over accounting treatment, but that too is a corporate governance concern.
  
  Furthermore, a CEO who rejects the opinions of the accounting experts risks being regarded as either optimistic to the point of ignoring the need for prudence in accounting, or as being reluctant to allow the financial statements to reflect the true state of his business.
  
  Besides, how do you explain the fact that the management accounts of the rest of the listed companies – as at last Wednesday, there are 988 companies whose shares are traded on Bursa Malaysia – are pretty much similar to their audited accounts?
  
  And what does it say when a company has had to explain variances between its audited and unaudited profits more than once in recent years? Among the 20 companies in this year's batch, the repeat cases include KBES Bhd, Liqua Health Corp Bhd, Dolomite Corp Bhd, Pasdec Holdings Bhd, Eden Inc Bhd, Limahsoon Bhd and MESB Bhd.
  
  Bursa Malaysia has made a stand on variances that could not be justified. For example, in April 2005, it publicly reprimanded and imposed fines on Goh Ban Huat Bhd and Supercomal Technologies Bhd after their audited 2004 profits varied significantly from the figures announced in their fourth-quarter reports.
  
  The basis for these actions was that when these companies released their unaudited accounts, they made announcements that did not meet the criteria of the listing requirements.
  
  The problem is, it's unclear how the exchange determines whether a variance is tolerable or not. If Bursa Malaysia doesn't penalise a company for a variance, should we conclude that the company has done all it could to ensure that its management accounts reflected a true and fair view of its financial position? ( Seriously, this is one good suggestion! Punish these buggers! )
  
  And how can we tell that the company has taken steps to ensure that it will not have variances in the future? A little more transparency surely won't hurt.
  
  And what about those companies that fail to meet the deadlines for the submission of audited accounts?
  
  We know about the accounting-related woes at Liqua Health Corp Bhd, Ho Hup Construction Co Bhd, Satang Holdings Bhd, Welli Multi Corp Bhd, Golden Plus Holdings Bhd and Mems Technology Bhd. So, when they say their audited accounts will be late, we just take it as the latest in a cascade of bad news. ( How true!!!!!!!!!!)
  
  
  However, what was unexpected was that other companies too had trouble finalising the audit of their financial statements. Those in the latter group include Nakamichi Corp Bhd, Haisan Resources Bhd, Advance Synergy Bhd, LFE Corp Bhd and Kosmo Technology Industrial Bhd. Bursa Malaysia has consistently acted against the late filing of audited accounts. And rightly so, because these are major failings and are often red flags of bigger problems. Perhaps, it’s time to think of variances as the same things.

One of the key issue in investing is that investing is all about trusting the company, the management and the owner of the stock that we trust in.

If there is no trust, it's so pointless and so brain dead to talk about investment based on yardsticks such as PE, NTA, ROE, ROCE, INTRINSIC VALUE and so on.

How do you value a company that you cannot trust?

Could you ever, ever get a fair value from your investment?

Is there even any value?

And since there is no trust, one may never know when they might be screwed by these rather un-trustworthy people!

Trust is such an important word which many fails to understand. Some would blissfully choose to ignore!

Last but not least, Bursa Malaysia has to do something about this. It's simply not right to see companies announcing such massive deviations in their audited accounts. Bursa simply needs to be more stict in their enforcement of its rules. As it is, it's so clear to see that our local market already lacks investors and if nothing is done to punish all the wrong doer, the end result could see innocent investors losing massive savings in such stock(s), which ultimately leads to more and more destruction of the already shrinking market capital.

Which investor wants to invest in our market when the issue of trust is not there, given the massive deviation in audited and unaudited earnings?

And when there is no trust, sooner rather than later, the investing public would simply lose faith and trust in the exchange!

Needless to say, in the long run, Bursa Malaysia would hurt big time!

And what about Pentamaster?

Saw this article published on the Edge, 30-04-2008: Major profit discrepancy in Pentamaster’s results

• Petaling Jaya: Pentamaster Corp Bhd’s audited net profit for the financial year ended Dec 31, 2007, of RM3.6 million turned up 61% lower than its unaudited net profit of RM9.2 million announced earlier.
  
  The company did not elaborate on what caused the discrepancy when announcing its audited results to Bursa Malaysia yesterday.
  
  In February, Pentamaster announced that its unaudited FY2007 net profit was down 13% to RM9.2 million compared to FY2006, due to additional provisions and write-offs made in FY2007. It said the additional provisions and write-off on inventories and debtors amounted to RM5.8 million and RM492,000, respectively, in 4Q FY2007.
  
  Pentamaster provides automation solutions for the semiconductor industry. The stock closed flat at 48.5 sen yesterday.

This was the announcement posted on Bursa. DEVIATION OF MORE THAN 10% OF THE UNAUDITED RESULTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007 RELEASED ON 26 FEBRUARY 2008 AND THE AUDITED RESULTS OF THE GROUP

Seriously, such explanation simply isn't enough, not when the audited accounts deviates by a whopping 61%.

This company should at least have the decency to explain to everyone what is happening.

Wouldn't you agree?

RedTone's Deviation in its accounts

I find it so rather intriguing.

Posted on the Edge Weekly:

• 8 Oct 2007: Corporate: REDtone's numbers in Pakistan don't tally
  By Cindy Yeap
  
  REDtone International Bhd, already late in finalising its accounts for the financial year ended May 31, 2007, needs another week to close its books. The company in an announcement last Friday said the delay was because it could not finalise audited accounts for its subsidiary in Pakistan.
  
  A source says a part of the problem could be due to REDtone only recently managing to find a replacement for its accounts manager in Pakistan "after several months". But essentially, auditors are having problems tallying numbers in Pakistan due to discrepancies in entries in its books involving foreign exchange (forex) rates, the source says.
  
  "The numbers (entries) do not agree (tally) because of the difference in the exchange rates for Pakistani rupee to the US dollar and the Malaysian ringgit. And the ringgit has been appreciating against the dollar, but the Pakistani rupee has weakened. There's some complication because some of these complex forex entries are done manually (not computerised)," the source adds. Payments to suppliers, for instance, are made in US dollars.
  
  There are also some issues with the recording of sales from its "call back" telephony service. Nonetheless, it is understood that the company does not suspect any "foul play" taking place at the moment.
  
  Whether or not one accepts the explanation of complications in forex computations, it is clear that there is a problem with its business processes. And it seems to be a problem that only just arose because REDtone had never been late in submitting its accounts. The company will need to assure investors that the issue will be fixed fast. ( Click here for the rest of the article: 8 Oct 2007: Corporate: REDtone's numbers in Pakistan don't tally )

The very next day..

• 09-10-2007: MD: No fraud in REDtone accounts
  by Ellina Badri
  
  PETALING JAYA: REDtone International Bhd’s delay in submitting its annual accounts for the financial year ended May 31, 2007 was not due to fraud or wrongdoing in finalising its accounts for that year, its group managing director Wei Chuan Beng said.
  
  He told The Edge Financial Daily yesterday that it took some time to finalise the accounts as it had to “re-do” accounting entries of its subsidiary in Pakistan due to the difference in the exchange rates of the Pakistani rupee to the US dollar and the ringgit.
  
  He said the accounts were now being finalised and REDtone’s auditors would present the report to the company in the next two days, to be announced to Bursa Malaysia this Friday.
  
  The Edge weekly, in its latest issue, had reported that REDtone had yet to submit its FY07 audited accounts since missing Bursa Malaysia’s initial Sept 30, 2007 deadline.
  
  Asked if the delay reflected on the efficiency of the company’s business processes, Wei said the incident was a “one-off thing” and moving forward, it would look to hedge currency fluctuations on a weekly and monthly basis to avoid this issue recurring in the future.
  
  He added he was confident the accounts would show “very positive progress” in the company’s revenue.
  
  Meanwhile, Wei said the company viewed the current setback separately from its plans to migrate to the Main Board of Bursa Malaysia from the Mesdaq Market.
  
  He said its migration to the Main Board was a shareholders’ matter and the emergence of REDtone’s new Bumiputera shareholders ensured its plans would move forward.
  
  Warisan Jutamas Sdn Bhd, controlled by Mohamed Shah Kadir and Abdul Karim Kadir, had emerged as a substantial shareholder in REDtone with a 10% stake last Friday.
  
  On brokers’ Sell recommendation on REDtone’s stock, Wei said they might not have had current information on the company which had new developments such as in its Bumiputera shareholders, overseas developments and future partnerships.
  
  “The past does not represent the future,” he said.
  
  Its share price closed at 59 sen yesterday, down 2 sen from 61 sen with 779,600 shares done

Ok, no fraud says the MD.

Today...

• 12-10-2007: REDtone announces deviations in accounts
  by Sharmila Ganapathy
  
  KUALA LUMPUR: REDtone International Bhd yesterday announced deviations in its results for the financial year ended May 31, 2007 with a 45% difference between the audited and unaudited group net profits.
  
  The company said the audited group net profit for FY07 was RM4.9 million compared with RM8.98 million for the unaudited figures.
  
  It said the deviations originated from profits after taxes, where audited results totalled RM5.6 million against the unaudited RM10.5 million. The RM4.96 million difference, said REDtone, was due to unrealised net foreign exchange losses on an inter-company loan (RM2.98 million) and unrealised net foreign exchange losses on trade receivables (RM1.13 million).
  
  Other deviations making up the RM4.96 million were RM2.48 million worth of traffic costs associated with committed but unutilised airtime, deferred tax assets from unabsorbed losses and unutilised capital allowances (RM1.86 million), minority interests share of loss (RM897,000) and other items (RM666,000).
  
  The Edge weekly recently reported that REDtone had yet to submit its audited accounts for FY07 after missing its September deadline.
  
  On Monday, REDtone group managing director Wei Chuan Beng said the delay in submitting the annual accounts was not due to fraud or wrong doing in finalising the accounts for that year.
  
  He said it took some time to finalise the accounts as the company had to re-do accounting entries in its subsidiary REDtone Telecommunications Pakistan Pte Ltd due to the difference in the exchange rates of the Pakistani rupee to the US dollar and the ringgit.

A deviation of 45%?!!!

WOW!

So tell me... wazzup man!