PETALING JAYA: Zelan Bhd’s external auditor has flagged the existence of material uncertainty in the group’s accounts for the financial year ended Dec 31, 2020, which may cast significant doubt on its ability to continue as a going concern.
In a filing with Bursa Malaysia yesterday, the construction firm said its auditor, Messrs Al Jafree Salihin Kuzaimi PLT, had drawn attention to the group’s and company’s current liabilities which exceeded current assets by RM175.4mil and RM18.6mil respectively.
“These events and conditions, along with the other matters to the financial statements, indicate that a material uncertainty exists that may cast significant doubt on the ability of the group and the company to continue as going concerns.
“Our opinion is not modified in respect of this matter.”
However, Zelan said there was no reason for its directors to believe that the group will not generate sufficient cash from its operations within the next twelve months from the reporting date to repay the existing borrowings, complete the projects in progress and meet working capital.
“Accordingly, the financial statements of the group do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or to amounts and classification of liabilities that may be necessary if the group is unable to continue as a going concern.”
A key audit matter raised by the auditor included recoverability of the receivable balance from a project owner of Zelan’s project in Abu Dhabi.
On Oct 1, 2015, Zelan terminated its project in Abu Dhabi, United Arab Emirates and entered into an arbitration with the project owner.
Zelan said its directors are of the view that the group is able to recover the arbitration award.
“The directors made an assessment of the carrying value of the total receivable balance by taking into consideration the timing and duration of the legal enforcement process against the project owner based on advice from the external solicitor.
“Following from the directors’ assessment, the group has since recognised the arbitration award as a receivable amounting to 222.5 million dirhams (RM253.43mil) as at the financial year ended Dec 31, 2020,” it said.
Nonetheles, Zelan noted there is a risk of irrecoverability of the group’s significant receivables arising from the arbitration award, due to the lack of financial information of the project owner and the premature status of the legal proceedings taken by the group.
“Due to the inherent uncertainty involved in determining the credit worthiness of the project owner which is the basis of the assessment of recoverability, this is one of the key judgmental areas that our audit is concentrated on.”
Another key audit matter raised by Al Jafree Salihin Kuzaimi was revenue and cost recognition relating to Zelan’s construction contracts.
Zelan said it recognised revenue from construction contracts over time in the consolidated statement of comprehensive income.
“Progress of completion is measured using the input method, which is based on the contract costs incurred up to the end of the reporting period as a percentage of estimated total costs of the project.
“The group recognised revenue and gross profit from construction contracts of RM25.3mil and RM8.9mil respectively for the financial year ended Dec 31, 2020.”
Zelan said revenue recognition of a construction contract was inherently complex, adding that the group was focused on this area, as there were significant management estimates and judgements involved.
These include stages of completion, the extent of the construction costs incurred to date, estimated total construction costs and the need for estimated liquidated ascertained damages on projects where the estimated completion dates are beyond the contractual completion dates.