Auditor issues disclaimer of opinion on Best World's FY2020 statements

ERNST & Young (EY), the independent auditor of Best World International, has issued a disclaimer of opinion relating to the group's financial statements for the fiscal year ended Dec 31, 2020.

In a 50-page report posted by Best World to the Singapore Exchange late on Wednesday, EY said it was unable to obtain sufficient audit evidence to provide a basis for an audit opinion on the group's business model in China; its relationship with its import agents and marketing agent; and the classification of payments made to promotional companies.

The auditor noted that these reasons were similar to that of its previous disclaimer of Best World's financial statements for FY2019.

In its report for FY2020, EY said recent legal advice obtained by Best World "did not clearly conclude" that its franchise business model complies with requirements of China's laws and regulations.

Citing uncertain evaluation surrounding the nature of the business model, the auditor said it was therefore unable to determine if there were any legal and tax implications for Best World in China - and if any adjustments or disclosures are required for the group's FY2020 and FY2019 statements.

EY also shared that as with FY2019, it was unable to obtain sufficient audit evidence to establish Best World's business rationale for the company's substantial involvement in the daily operations of its import agent and marketing agent, and why it "exercised a certain degree of management oversight and control over" the agents' financial affairs.

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Such involvement by the group raises "questions on the commercial substance of the arrangement between the group and its import and marketing agents", said EY.

Lastly, the auditor highlighted that an entire service fee of about S$13.4 million was classified under "marketing fees" in Best World's FY2020 profit and loss statement. Best World had previously engaged third party promotional companies to assist in payment of commission to its sales representatives among other services.

EY understands from the group's management that the service fee paid to the said promotional companies also include "other payments to sales representatives" - but said it was unable to determine if revenue and the related expenses were appropriately classified, presented and disclosed in the income statement.

Shares of Best World have been suspended from trading since May 2019 since the onset of numerous accounting issues. The mainboard-listed beauty products company on Sept 10 announced it had obtained a further extension of time to hold its annual general meeting for FY2020 by Sept 27.

Earlier in March 2021, Best World said its shareholders were unlikely to see the counter resume trading anytime soon, until it can assuage the concerns of the regulatory arm of Singapore Exchange, SGX RegCo, on the legality of its sales and distribution model in China.

READ MORE: 

• Best World net profit more than doubles to S$37.9m
• Best World 'exploring adjustments' to its China sale and distribution model
• Best World submits trading resumption proposal to SGX RegCo
• Best World must address concerns over accounting practices: SGX