KUALA LUMPUR: Serba Dinamik Bhd’s decision to formally file legal proceedings against its external auditors KPMG PLC is “most unusual” particularly before the audit is completed, says the Malaysian Institute of Corporate Governance (MICG).
In a statement issued on Friday, MICG deputy president David W. Berry the legal action particularly before the audit is complete and the company’s earlier proposed independent review has commenced, “is to be regarded as a regrettable decision – a view we believe will be shared by the regulators”.
“It is to be hoped a way forward is agreed soon and the outcome embellishes Malaysia’s reputation as a financial market which exemplifies best practices in corporate governance, ” he said.
At 11.27am, Serba Dinamik was trading at 47.5 sen, down six sen with 176 million shares done.
Below is the statement issued by MICG:
Re: Serba Dinamik Holdings Bhd
1. To the development between Serba Dinamik and KPMG PLT – what does KPMG’s resignation indicate?
KPMG’s resignation as Serba Dinamik’s external auditor isn’t surprising in view of Serba Dinamik’s decision to commence legal proceedings against KPMG.
It is clear the relationship which should exist between client and auditor has broken down.
KPMG cannot complete its audit work to an acceptable professional standard in this climate, nor can Serba Dinamik entertain a continued relationship.
2. How do you see this development transpiring moving forward?
Serba Dinamik initially announced it would appoint BDO to conduct an independent review of the audit matters raised by KPMG.
Subsequently, Serba Dinamik named EY and said it was agreeing terms. Most recently, Serba Dinamik has said it was reviewing the need to appoint EY.
Whatever choice is made, a reputable audit firm with established international affiliations will be needed to complete the statutory audit for the 2020 financial year.
In this process, the audit matters raised by KPMG will have to be addressed.
3. Is it wise for Serba Dinamik to take legal action against its external auditor for the alleged negligence?
As Serba Dinamik has formally commenced legal proceedings against KPMG, which has said it will vigorously defend, we cannot comment on the facts or the virtues of the case.
However, it is most unusual for a PLC to take such action against its external auditor, particularly before the audit is complete and the company’s earlier proposed independent review has commenced, and is to be regarded as a regrettable decision – a view we believe will be shared by the regulators.
It is to be hoped a way forward is agreed soon and the outcome embellishes Malaysia’s reputation as a financial market which exemplifies best practices in corporate governance.