Serba Dinamik Holdings Berhad (“Serba Dinamik”) has announced to take a legal action against its external auditor KPMG. Serba Dinamik announced about their decision to take legal action during a press conference on 22 June 2021.
Serba Dinamik in its legal suit announced in Bursa Malaysia, state that it is sueing KPMG for RM4 billion in relation to the following loss and damages:
- A loss of RM4.9 billion in Serba Dinamik’s market capitalisation;
- A loss of confidence in the market from Serba Dinamik’s shareholders, investors and financial institutions; and
- A loss of confidence with Serba Dinamik’s customers – both domestically and internationally.
Serba Dinamik claims that KPMG has failed and/or neglected to complete the audit report until and unless a third-party independent reviewer is being appointed and addressed the findings raised by the auditor. Serba Dinamik however, believed or claimed that the findings raised by KPMG were not substantive in nature that warrants an independent review and the issues faced by the auditor were attributable to KPMG’s own negligence in the course of the audit process.
What are the findings raised by KPMG?
Serba Dinamik in their reply query letter made to Bursa Malaysia dated 28 May 2021, state that KPMG has highlighted 4 issues. These are:
- 11 out of 12 confirmations sent to Serba Dinamik’s customers relating to sales transactions, trade receivables and material on site balances did not come back to the auditor.
- Certain transactions on purchases and trade payables balances on local supplier. KPMG noted that:
- 2 local suppliers were incorporated on the same day.
- 4 local suppliers were found to have the same registered address as the 2 local suppliers.
- 5 out of 6 suppliers were noted to have paid-up capital of RM100,000 each where each supplier is owned by an individual shareholder despite having transactions which range between RM60 million to RM96 million.
- Office address for customer and supplier in Bahrain cannot be located on physical site. KPMG also later noted that the fax contact number of the customer as indicated on the official website is registered under one of the Serba Dinamik Group’s employees.
- The inability of KPMG to determine the appropriateness of the information technology contracts and transactions as well as the revenue and costs recognised due to:
- Certain suppliers’ invoices do not have registration number;
- 2 suppliers and 2 customers companies stamp did not bear registration number;
- Differences in the names contained in legal contract agreement, invoices, user acceptance test and customer companies’ stamp;
- Differences in addresses contained in the legal contract agreement compared to customers’ website;
- 6 out of 7 customers will make direct payment to subcontractors and Serba Dinamik will receive the net amount; and
- 3 customers have minimal share capital and were only incorporated in 2019 and 2020 with one of the customer’s principal activities do not appear to be IT related.
Although Malaysians are in shock to hear about this recently, however events have been unfolding back in May 2021. Below is the chronology of events that has occurred between Serba Dinamik and KPMG based on public announcements made by Serba Dinamik. KPMG on 24 June 2021 has resigned as the external auditor.
The case is still ongoing and continues to be a topic of discussion in the industry. This litigation is seen as one of its kind between auditor and company. We will come back with more updates as it happens. Stay tuned for more updates on the case and related articles on technical matters.