Oceanus auditor qualifies opinion, citing inability to verify payables, loans

THE AUDITOR of Oceanus Group has qualified its opinion of the abalone supplier's 2017 financial statements because it was unable to satisfactorily verify the numbers for certain payables, loans and biological assets.

The auditor, Foo Kon Tan, said that documentation was unavailable for trade and other payables amounting to 8 million Chinese yuan (S$1.7 million) in both 2017 and 2016. Foo Kon Tan could not satisfy itself by alternative means the validity, completeness and accuracy of those trades and other payables.

The auditor was also unable to verify one million yuan of payables to an executive director that resulted from the director paying that amount on behalf of a subsidiary in the interest of time. That money was paid to a third party to restore safety and control of a farm that had been seized by the subsidiary's contract security and protection services provider.

Foo Kon Tan said the company, which is on the Singapore Exchange's watch-list, did not adhere to accounting rules on the treatment of convertible loans. The company redeemed convertible loans for 397.3 million in December 2017, comprising 62.6 million yuan of cash and 334.7 million yuan worth of new shares.

Accounting rules require that company to allocate part of the redemption amount to the liability component of the loan based on its fair value, with the residual allocated to the equity component of the convertible. However, Oceanus allocated the redemption amount based on the carrying value of the loan, and there was not assessment of the fair value of the liability component for the loans, the auditor said.

In terms of biological assets, the auditor noted that although management had conducted a physical count as at end-2017, it had not done so at the end of 2016. As a result, it was not clear if restrospective adjustments had to be made.

Foo Kon Tan also said that it was unable to assess an impairment of a 17.1 million yuan investment into Oceanus Australia Abalone World because of a lack of documentation.

Notwithstanding the qualifications, adjustments as a result of the audit led Oceanus to post an 8 per cent higher net profit for 2017 than previously reported. The group's audited net profit for the year was 189.3 million yuan.