PETALING JAYA: Zelan Bhd’s external auditor, Messrs Al Jafree Salihin Kuzaimi PLT, has expressed an unqualified opinion with material uncertainty related to going concern in its Independent Auditors’ Report in respect of the financial statements of the group for the financial year ended Dec 31, 2020 (FY20).
An extract of the report revealed that as of that date, the group’s and the company’s current liabilities exceeded current assets by RM175.4 million (2019: RM145.6 million) and RM18.6 million (2019: RM18.8 million) respectively.
“These events and conditions, along with other matters, indicate that a material uncertainty exists that may cast significant doubt on the ability of the group to continue as a going concern. Our opinion is not modified in respect of this matter,” the report said.
The audit highlighted, first, the recoverability of the receivable balance from an owner of the group’s project in Abu Dhabi.
The directors are of the view that the group is able to recover the arbitration award. The directors made an assessment of the carrying value of the total receivable balance by taking into consideration the timing and duration of the legal enforcement process against the project owner based on advice from the external solicitor. Following from the directors’ assessment, the group has since recognised the arbitration award as a receivable amounting to AED 222.5 million as at FY20.
“There is a risk of irrecoverability of the group’s significant receivables arising from the arbitration award due to lacking financials information of the project owner and the premature status of the legal proceedings taken by the group.
“Due to the inherent uncertainty involved in determining the credit worthiness of the project owner which is the basis of the assessment of recoverability, this is one of the key judgmental areas that our audit is concentrated on.”
Second, the audit highlighted revenue and costs recognition for its construction contracts, which the group recognised revenue and gross profit from construction contracts of RM25.3 million and RM8.9 million respectively for FY20.
“Revenue recognition of a construction contract is inherently complex and we focused on this area because there are significant management estimates and judgements involved determining the stage of completion; extent of the construction costs incurred to date; estimated total construction costs; and need to estimated liquidated ascertained damages on projects where the estimated completion dates are beyond the contractual completion dates.”
Zelan said the validity of the going concern assumption is dependent upon, among others, the group’s ability to generate sufficient cash from its operations; monitor and manage the progress of its existing construction projects.
“As at the date of this report, there is no reason for the directors to believe that the group will not generate sufficient cash from its operations within the next 12 months from the reporting date to repay the existing borrowings, complete the projects in progress and meet working capital. Accordingly, the financial statements of the group do not include any adjustments relating to the recoverability and classification of recorded asset amounts or to amounts and classification of liabilities that may be necessary if the group is unable to continue as a going concern,” Zelan added.