KPMG also suggests the group improve its internal controls
By LYNETTE KHOO 14 May 2009
(SINGAPORE) A review by KPMG on concrete maker China Yongsheng (formerly Global Ariel) found that certain payments for a joint property project were made without sufficient documentation and that the internal controls of the group should be improved.
KPMG Advisory Services Pte Ltd was appointed last August as independent auditors to look into allegations raised by the former financial controller, Tony Law. He resigned last July, citing ‘dissatisfaction and disagreement with the company’s corporate governance structure and practices’.
One of his disagreements with the group has to do with the payment of a land deposit of 34.4 million yuan (S$7.38 million) for a joint property development project with Suzhou Jinzhu Property Development Co.
From its findings, KPMG said it does not think that the board dealt sufficiently with the land purchase and the related project.
Though there was verbal consent from the board to proceed with the proposed project in August 2007, shareholders’ approval was sought only on May 13 last year. The verbal contract had, however, bound the group to large financial commitments, KPMG said.
The total land and development cost for the project was estimated to be 3.8 billion yuan. Though the group’s share of the commitment to complete the project constituted a major transaction as it represented 434 per cent of the net asset value of the group as at March 31, 2008, this proposal was not announced to shareholders until May 30, 2008.
But SGX listing rule requires immediate announcements for major transactions exceeding 5 per cent of the group’s net asset value, net profit or market capitalisation.
‘Given the magnitude of the payments, the lack of accountability on the part of management to the board and the lack of due care to protect the group’s interests seriously jeopardised the financial position of the group,’ KPMG said in its report.
There was also no background check or due diligence procedures carried out or reported on the proposed joint venture partner, KPMG noted. It was hence imprudent for management to undertake this commitment with Jinzhu in a new area of business without a detailed business and financing plan, it added.
But KPMG did not agree with Mr. Law’s assertions on other counts.
The auditors felt that the independence of certain directors was not compromised nor was there an attempt to change the material contents of the minutes of board meeting pertaining to the payment.
KPMG’s findings refuted the claims that the group paid ‘lip service’ to internal controls as there is generally a system of checks and balances in place.
Mr. Law had also in his allegations criticised Omega Capital’s active role in advising the group on corporate governance issues, after being a financial adviser for the company’s backdoor listing on SGX in June 2007.
KPMG viewed that this arrangement is not inappropriate, taking into account SGX listing rule 113, which says it is recommended that the issuer retain the services of the issue manager for at least one year following its listing.
Still, it advised that China Yongsheng enter into a new confidentiality agreement with Omega Capital covering all information that might be disclosed to the latter.
On Mr. Law’s allegations that incorrect or misleading information was given to SGX in response to its query on a late profit warning for the first quarter results ended March 31, 2008, KPMG said it is of the ‘considered view that the information included in the company’s reply to SGX first query is not inaccurate or misleading’.
As for the issuance of profit warning for Q2 2008, KPMG felt that it was not unreasonable that Mr. Law was not consulted, given that he had tendered his resignation on June 23, 2008.
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China Yongsheng faulted over payments
KPMG also suggests the group improve its internal controls
By LYNETTE KHOO
14 May 2009
(SINGAPORE) A review by KPMG on concrete maker China Yongsheng (formerly Global Ariel) found that certain payments for a joint property project were made without sufficient documentation and that the internal controls of the group should be improved.
KPMG Advisory Services Pte Ltd was appointed last August as independent auditors to look into allegations raised by the former financial controller, Tony Law. He resigned last July, citing ‘dissatisfaction and disagreement with the company’s corporate governance structure and practices’.
One of his disagreements with the group has to do with the payment of a land deposit of 34.4 million yuan (S$7.38 million) for a joint property development project with Suzhou Jinzhu Property Development Co.
From its findings, KPMG said it does not think that the board dealt sufficiently with the land purchase and the related project.
Though there was verbal consent from the board to proceed with the proposed project in August 2007, shareholders’ approval was sought only on May 13 last year. The verbal contract had, however, bound the group to large financial commitments, KPMG said.
The total land and development cost for the project was estimated to be 3.8 billion yuan. Though the group’s share of the commitment to complete the project constituted a major transaction as it represented 434 per cent of the net asset value of the group as at March 31, 2008, this proposal was not announced to shareholders until May 30, 2008.
But SGX listing rule requires immediate announcements for major transactions exceeding 5 per cent of the group’s net asset value, net profit or market capitalisation.
‘Given the magnitude of the payments, the lack of accountability on the part of management to the board and the lack of due care to protect the group’s interests seriously jeopardised the financial position of the group,’ KPMG said in its report.
There was also no background check or due diligence procedures carried out or reported on the proposed joint venture partner, KPMG noted. It was hence imprudent for management to undertake this commitment with Jinzhu in a new area of business without a detailed business and financing plan, it added.
But KPMG did not agree with Mr. Law’s assertions on other counts.
The auditors felt that the independence of certain directors was not compromised nor was there an attempt to change the material contents of the minutes of board meeting pertaining to the payment.
KPMG’s findings refuted the claims that the group paid ‘lip service’ to internal controls as there is generally a system of checks and balances in place.
Mr. Law had also in his allegations criticised Omega Capital’s active role in advising the group on corporate governance issues, after being a financial adviser for the company’s backdoor listing on SGX in June 2007.
KPMG viewed that this arrangement is not inappropriate, taking into account SGX listing rule 113, which says it is recommended that the issuer retain the services of the issue manager for at least one year following its listing.
Still, it advised that China Yongsheng enter into a new confidentiality agreement with Omega Capital covering all information that might be disclosed to the latter.
On Mr. Law’s allegations that incorrect or misleading information was given to SGX in response to its query on a late profit warning for the first quarter results ended March 31, 2008, KPMG said it is of the ‘considered view that the information included in the company’s reply to SGX first query is not inaccurate or misleading’.
As for the issuance of profit warning for Q2 2008, KPMG felt that it was not unreasonable that Mr. Law was not consulted, given that he had tendered his resignation on June 23, 2008.
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