ASIA Fashion Holdings's independent auditor, Foo Kon Tan LLP, has included a qualified opinion on the company's financial statements for the financial year ended Dec 31, 2014.

Issues flagged include the inability to ascertain the appropriateness of compensation claims and opening balances of the group; unverified transactions pertaining to an associated company; and the recoverability of loans.

Asia Fashion responded to the qualified opinion on Tuesday, saying that the compensation claims relate to the operations of Qianfeng International Ltd and its subsidiaries, which had been disposed of by the group on Feb 3, 2015.

"The board is of the view that the compensation claims are isolated and non-recurring in nature, relating specifically to the disposed group, and that they would not affect the future operations as well as the operating results of the group from FY2015 onwards," said Asia Fashion.

It said this is because the company had obtained appropriate legal and financial advice in connection with the settlement of the compensation claims. Arbitrators had also confirmed that the terms of the settlement agreements were valid and enforceable.

Foo Kon Tan LLP also said it was unable to ascertain the recoverability of the 49 million yuan (S$10.62 million) shareholders' loan made by Asia Fashion to Rich Circles Enterprise, which is repayable on June 18, 2016.

To this, Asia Fashion said: "The company will continually evaluate its financial position and explore alternatives, such as the capitalisation of such shareholders' loans together with Li Yaxin, the other major shareholder of Rich Circles, who has also granted a loan of 51 million yuan to Rich Circles under the same terms as the loan extended by the company. Such capitalisation will remove any doubts as to the recoverability of these loans and will strengthen the capital base of Rich Circles."

Correction: An earlier version of this article incorrectly stated that Foo Kon Tan LLP said it was unable to ascertain the recoverability of the 59 million yuan shareholders' loan made by Asia Fashion to Rich Circles Enterprise. It is in fact 49 million yuan. The article above has been revised to reflect this.