China Fibretech: FY15 accounts true and fair despite lack of complete assurance

MAINBOARD-LISTED dye maker China Fibretech said on Tuesday that its fiscal 2015 accounts are "true and fair" despite a lack of assurance by the chief executive on customers' claims and its auditors' inability to obtain certain supporting documents.

In response to queries by the Singapore Exchange (SGX), the company also said that it was satisfied with the work of two directors even though they had not attended a single board meeting during the year.

According to China Fibretech's annual report, the board was unable to receive assurance from former chief executive officer (CEO) Wu Xinhua on certain potential customers' claims.

On Sept 29, 2016, China Fibretech said that Wu Xinhua and Wu Dezhi had authorised payment to three customers who allegedly told the firm that they had suffered damages and financial losses totalling about 470 million yuan (S$96.53 million).

These payments were made without the knowledge of then-independent director Low Wai Cheong, and ex-senior finance manager Mak Chi Shing. They were also made despite requests by Mr Low and Mr Mak for the company to engage a law firm to handle the claim, and to seek board approval before making any payments.

In the company's response to SGX, it said that Mr Wu Xinhua - who stepped down as CEO on Oct 23, 2017 but remains as a board director - had assured the company that the financial records have been properly maintained, and that the company's risk management and internal controls are effective.

In addition, directors of the company felt that financial accounts were "true and fair" despite uncertainties over the legitimacy of compensation claims and bank balances since the uncertainties were disclosed in notes to the accounts.

In the company's annual report for FY2015, the auditor also stated that it had inadequate information to ascertain if inventories were properly carried. China Fibretech said that the company had always maintained proper supporting documents, and that these were "given to the auditors as and when requested". The company added that during the audit process, "the auditors had not communicated to the management on this issue".

China Fibretech also disclosed that internal auditors have deemed that the firm's control over goods on consignment needs improvement, and that insurance coverage over its inventory should be reviewed.

SGX asked the company to explain why it paid directors Lin Qingguo and Wu Dezhi directors' fees of S$11,000 each even though both directors had not attended any board meeting during the year.

"It has been the company's practice for Mr Lin Qingguo and Mr Wu Dezhi to attend board and board committee meetings only when these are held in China for cost saving reason as well as due to Mr Lin's discomfort with long distance travel over health reason," the company said, adding that directors' fees were accrued on a pro-rata basis based on fiscal 2014 figures under trade and other payables, and have not been paid out.

Trading of China Fibretech's shares have been suspended since November 2015.