BDO issues disclaimer of opinion for Singapore Kitchen Equipment's FY2020 financial statements

ACCOUNTING firm BDO has issued a disclaimer of opinion in its independent auditor's report on Singapore Kitchen Equipment's (SKE's) financial statements for the year ended Dec 31, 2020.

"We have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements," BDO said.

The reasons are linked to the 8 flagged transactions that were made public in August this year, with the matter reported to the Minister for Finance. Catalist-listed SKE received a debit note from its major shareholder and ultimate holding company, QKE Holdings, on Mar 30, 2020 claiming reimbursement of the 8 payment transactions that had been paid on SKE's behalf between April 2018 and May 2019. On Apr 1, 2020, SKE paid for the 8 payment transactions, totalling S$1.4 million, to QKE.

QKE is controlled by SKE's chief executive officer and executive director Sally Chua Chwee Choo, her husband Lee Chong Hoe (who is also SKE's executive director), and Cheng Chun Choi.

Prior to the receipt of the debit note, the group had not recorded the expenses relating to the payment transactions in its accounting system. Other irregularities were subsequently identified, including uncovering of altered supplier's invoices, cheque images and bank statements.

"Furthermore, there were contracts with customers which were not identified in prior periods resulting in improper recognition of revenue in the previous financial years. We were also presented with new information in relation to arrangements with customers which were inconsistent with those management representations which we had obtained in prior periods," said BDO in its independent auditor's report incorporated within SKE's FY2020 annual report, which was released late Friday (Oct 22) night.

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The matters were brought to the attention of SKE's audit committee. Management revisited the accounting records and financial information prepared in prior periods, and several adjustments and restatements were made consequently.

"In view of the above, we assessed the impact of the various irregularities, inconsistencies in management representation and the potential lapses in internal control over the financial reporting processes," BDO said. The auditor determined that there may be misstatements in multiple elements of the financial statements such as revenue, costs of sales, administrative expenses, and amount due to/from the ultimate holding company, among other things.

"We were therefore unable to obtain sufficient appropriate audit evidence: (a) to conclude whether the accompanying financial statements are materially misstated; (b) to ascertain the existence, completeness, accuracy, rights and obligations, valuation and/or classification, and related disclosures, of various transactions and balances entered into with customers, suppliers and the ultimate holding company, including the prior-year adjustments made by management; and (c) to evaluate whether the group had operated within appropriate internal control and corporate governance frameworks which may have a pervasive effect on the accompanying financial statements," BDO said.

It also highlighted an ongoing review by a law firm engaged by SKE on Aug 11, 2021, to help in the review of the 8 payment transactions and to provide legal advice to the group's management.

The report to be issued by the law firm could provide new information and findings that may have an impact on the financial statements. "Accordingly, we were unable to determine if any adjustments arising thereon, which may be required, and the extent of impact on the accompanying financial statements," said BDO.

Responding to the independent auditor's disclaimer of opinion for its FY2020 financial statements, SKE said its "audit committee is of the view that the group's systems of internal controls may not be adequate to address financial, operational, compliance and information technology controls and risk management systems during the year".

SKE has since appointed Baker Tilly Consultancy (Singapore) as its internal auditors to review and enhance the company's operating procedures and internal controls, it said on Friday night.