2017.09 HSIN CHONG GP

Company Name: Hsin Chong Groups Holdings Limited
Stock Code: 00404
Year end: June 30, 2017

Basis for Disclaimer of Conclusion

(1) Multiple uncertainties relating to going concern

As described in Note 2 to the interim financial information, the Group reported a net loss attributable to the owners of the Company of HK$1,087 million and had a net operating cash outflow of approximately HK$1,327 million during the six-month period ended 30 June 2017. As at the same date, the Group’s total borrowings amounted to HK$12,426 million, of which HK$8,668 million were classified as current liabilities, while its unrestricted cash and cash equivalents increased from HK$411 million to HK$512 million only.

As at 30 June 2017 and up to the date of this report, the borrowings of the Group in aggregate of HK$961 million and HK$2,583 million respectively were overdue but the Group has not been able to obtain extension of repayment of such balances prior to the date of this report. The overdue borrowings without extension would be immediately repayable if requested by the lenders. Furthermore, in respect of the borrowings of the Group in aggregate of HK$3,893 million as at 30 June 2017, the Group could not meet certain financial ratios as set out in the covenants in the relevant borrowing agreements.

Should the above-mentioned situations constitute or have become events of default under the respective borrowing agreements, including those under the cross-default terms, these might cause an aggregate amount of borrowings up to HK$6,600 million at 30 June 2017, of which an aggregate amount of HK$3,289 million had original contractual repayment dates beyond 30 June 2018, to become immediately repayable.

These conditions indicate the existence of material uncertainties which may cast significant doubt about the Group’s ability to continue as a going concern.

The directors of the Company have been undertaking a number of measures to improve the Group’s liquidity and financial position, and to remediate certain delayed repayments to financial institutions, which are set out in Note 2 to the interim financial information. The interim financial information has been prepared on a going concern basis, the validity of which depends on the outcome of these measures, which are subject to multiple uncertainties, including (i) the successful negotiations with the lenders for the renewal of or extension for repayment of outstanding borrowings, including those with overdue principals and interests; (ii) the successful obtaining of additional new sources of financing as and when needed; (iii) the successful implementation and acceleration of its disposal plan of its property, plant and equipment and leasehold land, investment properties, properties under development and completed properties held for sale, including timely execution of definitive sales agreements and timely collection of the disposal proceeds, and the successful deferral of capital expenditures for the Group’s unsold projects; (iv) the successful pre-sales of certain residential units in Foshan so as to generate operating cash inflows; (v) the successful negotiation with the Group’s existing lenders such that no action will be taken by the relevant lenders to demand immediate repayment of the borrowings in any breach of loan covenants or default, including those with cross-default terms; and (vi) the successful maintenance of relationship with the suppliers of the Group, in particular those in relation to the Group’s construction business and the property development projects such that no actions will be taken by those suppliers against the Group should the Group not be able to meet all the payment obligations on a timely basis.

The Company’s auditor did not express audit opinion on the Company’s consolidated financial statements for the year ended 31 December 2016 (the Company’s 2016 financial statements”) due to the potential interaction of the above-mentioned multiple uncertainties relating to going concern and the possible cumulative effect on the Company’s 2016 financial statements, and the other limitations on their scope of audit procedures. The Group’s financial position as of 30 June 2017 and up to the date of this report, and the measures undertaken by the directors of the Company to improve the Group’s financial position as summarised above are substantially the same as that existing as of 31 December 2016 and as of the date of the auditor’s report on the Company’s 2016 financial statements. The multiple uncertainties remain unresolved as of 30 June 2017 and their possible cumulative effects on the interim financial information could be both material and pervasive.

Should the Group fail to achieve the above mentioned plans and measures, it might not be able to continue to operate as a going concern, and adjustments would have to be made to write down the carrying values of the Group’s assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and non-current liabilities as current assets and current liabilities. The effects of these adjustments have not been reflected in the interim financial information.

(2) Transactions and balances relating to Mr. Zhou and his related entities

The Company’s auditor reported limitation on their scope of work in their audit of the Company’s 2016 financial statements in respect of certain transactions and balances relating to a former director of the Company, Mr. Zhou. The transactions and balances are summarised below.

(2)(i) Funding arrangements in relation to certain properties in Beijing

A set of agreements (“Agreement A”), which was not complete and fully executed, was entered into by a wholly-owned subsidiary of the Group (“Subsidiary A”), Mr. Zhou Wei (“Mr. Zhou”), and a People’s Republic of China (the “PRC”) incorporated company indirectly owned by Mr. Zhou and his relative (“Mr. Zhou’s Company A”). Pursuant to Agreement A, Mr. Zhou’s Company A should sell certain properties in Beijing, the PRC (the “BJ Properties”) to the Group at a consideration of RMB500 million. According to Agreement A, the Group should make a first instalment of RMB130 million upon fulfilling certain conditions, of which RMB129 million had been paid by Subsidiary A to Mr. Zhou’s Company A in August 2016. This balance was recorded as “Receivables and Prepayments” under non-current assets in the Group’s consolidated balance sheet as at 31 December 2016.

Another set of agreements (“Complete Agreement A”) were entered by the Subsidiary A, Mr. Zhou and Mr. Zhou’s Company A which was the same as Agreement A, except that they were complete and fully executed. Pursuant to further documents entered by Subsidiary A, another wholly-owned subsidiary of the Group (“Subsidiary B”) and Mr. Zhou’s Company A (“Further Documents”), Complete Agreement A was terminated as Subsidiary A did not provide the remaining funding of RMB370 million under that agreement. Furthermore, the balance of RMB129 million advanced by Subsidiary A was treated as an unsecured loan to Mr. Zhou’s Company A, which carries interest at 12% per annum and is repayable before 21 August 2024.

(2)(ii) Cooperation agreement in relation to the BJ Properties

A cooperation agreement was entered into between another wholly-owned subsidiary of the Group (“Subsidiary C”) and another PRC incorporated company owned by Mr. Zhou’s relatives (“Mr. Zhou’s Company B”) together with a guarantee agreement entered into amongst Subsidiary C, Mr. Zhou’s Company A and Mr. Zhou (collectively, “Agreement B”).

Pursuant to Agreement B, as considerations for certain services provided by Mr. Zhou’s Company B, Subsidiary C should pay a total amount of RMB247.5 million to Mr. Zhou’s Company B. Payments of RMB126.2 million and RMB121.3 million were made by Subsidiary C to another company indirectly owned by Mr. Zhou on 29 December 2016 and 13 January 2017, respectively, which were financed by a long-term loan facility of RMB420 million provided by a financial institution in the PRC to the Group on 28 December 2016. Pursuant to the relevant loan agreement, Mr. Zhou’s Company A pledged the BJ Properties to the financial institution as a security to the loan facility of RMB420 million. As at 31 December 2016, the first payment was recorded as “Receivables and Prepayments” under non-current assets in the Group’s consolidated balance sheet as at 31 December 2016. No profit or loss was recognised in the Consolidated Income Statement for the year ended 31 December 2016 in this connection.

Pursuant to another agreement (“Agreement C”), Agreement B was terminated and a loan agreement (“Agreement D”) was entered into, pursuant to which total payments of RMB247.5 million, made on 13 January 2017, in accordance with Agreement B, are treated as a loan from Subsidiary C to Mr. Zhou’s Company B for a term of period from 28 December 2016 to 12 November 2018, which carries interest at 0.91667% per month.

In relation to these transactions and balances with Mr. Zhou and entities related to him under (2)(i) and (2)(ii), together with the concerns on those transactions described in paragraphs (3) and (4) below in this report, the auditor of the Company’s 2016 financial statements requested the Company’s audit committee to commission an independent investigation on the approval, authenticity and commercial substance of the relevant transactions (the “Proposed Investigation”). Because of the above scope limitations and the multiple uncertainties relating to the Group’s ability to continue as a going concern (see sub-section (1) above) the Company’s auditor did not express an opinion on the Company’s 2016 financial statements.

In respect of the matter stated under (2)(i), RMB129 million was recorded as “Receivables and Prepayments ”under non-current assets in the Group’s condensed consolidated balance sheet as at 30 June 2017. For the six-month period ended 30 June 2017, interest income of RMB7.2 million was recognised in the Group’s condensed consolidated interim income statement and the corresponding interest receivable was included as “Other Receivable” under current assets in the Group’s condensed consolidated balance sheet as at 30 June 2017.

In respect of the matter stated under (2)(ii), RMB247.5 million was recorded as “Receivables and Prepayments” under non-current assets in the Group’s condensed consolidated balance

sheet as at 30 June 2017. For the six-month period ended 30 June 2017, interest income of RMB12.9 million was recognised in the Group’s condensed consolidated interim income statement and the corresponding interest receivable was included as “Other Receivable”under current assets in the Group’s condensed consolidated balance sheet as at 30 June 2017.

As at the date of this report, the Proposed Investigation is still in progress and the circumstances in respect of the transactions and balances relating to Mr. Zhou and his related entities remained substantially the same as at 31 December 2016 and the directors of the Company were unable to provide us any further explanation about these transactions and balances. Based on our procedures performed, the following issues which were highlighted in the report of the Company’s auditor relating to the Company’s 2016 financial statements remained unresolved:

(i) the business rationale and commercial substance, legitimacy, occurrence, accuracy, completeness and presentation of these transactions and the related balances as at and during the year/period ended 31 December 2016 and 30 June 2017;

(ii) the valuation of the related balances as at 31 December 2016 and 30 June 2017; and

(iii) whether the effects of these transactions have been properly accounted for and disclosed, including the accuracy and completeness of any related party transaction disclosures

(3) Payments made to a construction company

The Company’s auditor reported limitation on their scope of work in their audit of the Company’s 2016 financial statements in respect of payments made to a construction company. The details about the payment transactions are summarised below.

Two shop renovation subsidy agreements (the “Subsidy Agreements”) entered into by certain wholly-owned subsidiaries of the Group with a construction company incorporated in the PRC (the “Construction Company”), in relation to the Group’s property development project in Foshan city, the PRC (the “Foshan project”), and another one in relation to the Group’s property development project in Taian city, the PRC (the “Taian project”). There was also a supplemental agreement (the “Supplemental Agreement”) in relation to the Foshan project, and an interior renovation construction contract (the “Renovation Contract”) in relation to the Taian project.

Total contract sums under the Subsidy Agreements amounted to RMB765 million and RMB136 million for the Foshan project and the Taian project respectively. Amounts of RMB433 million and RMB22 million were paid in accordance with the Subsidy Agreements for the Foshan project and the Taian project respectively in 2016.

Pursuant to the Supplemental Agreement for the Foshan project only, as a result of the Group’s revised development and investment plan, an amount of RMB457 million out of the total contract sum of RMB765 million under the Subsidy Agreements was revised to cover certain services (“Services”) to be provided by the Construction Company. The remaining balance of RMB308 million was revised as subsidies for the renovation work of the future tenants as stipulated in the Subsidy Agreements, together with other construction work and tender services in relation to the Foshan project, with the final contract sum subject to work certification. As at 31 December 2016, of the total RMB433 million paid by the Group to the Construction Company under the Subsidy Agreements, an amount of RMB409 million was accounted for as partial payment in respect of the work of RMB457 million under the Supplemental Agreement. In August 2016, the Construction Company issued a payment request totaling RMB48 million, to the Group stating that the work under the Services had been completed. This amount was paid by the Group in January 2017.

Pursuant to the Renovation Contract for the Taian project only, the Construction Company should provide interior decoration service for the first phase outlet mall of the Taian project for a contract sum of RMB500 million. An amount of RMB250 million was paid under the Renovation Contract upon the inception of the Renovation Contract. Management confirmed that as at 31 December 2016, the work under the Renovation Contract has not commenced.

In the Group’s consolidated balance sheet as at 31 December 2016, the aggregate amount of RMB272 million paid for the Taian project was included as “Receivables and Prepayments” under non-current assets while for the Foshan project, out of the aggregate amount of RMB433 million paid by the Group, amounts of RMB409 million were accounted for as additions to “Investment Properties” during 2016 and amounts of RMB24 million was included as “Receivables and Prepayments” under non-current assets.

In relation to these payment transactions, together with the concerns on those transactions described in sub-sections headed (2) and (4) in this report, the auditor of the Company’s 2016 financial statements has requested the Company’s audit committee to commission an independent investigation on the approval, authenticity and commercial substance of the relevant transactions (the “Proposed Investigation”). Because of the above scope limitations and the multiple uncertainties relating to the Group’s ability to continue as a going concern (see sub-section (1) above), the Company’s auditor did not express an opinion on the Company’s 2016 financial statements.

During the six-month ended 30 June 2017, the aggregate amount of RMB148 million paid for the Foshan project of which RMB126 million and RMB22 million was accounted for as addition to “Investment Properties” and “Property, plant and equipment” respectively. In respect of the aggregate amount of RMB24 million which was included as “Receivables and Prepayments” under non-current assets, as mentioned above, RMB19 million and RMB5 million was reclassified to “Investment Properties” and “Property, plant, equipment” respectively during the six-month period ended 30 June 2017.

In the Group’s condensed consolidated balance sheet as at 30 June 2017, RMB491 million and RMB90 million was accounted for as “Investment Properties” and “Property, plant and equipment” respectively for the Foshan project and RMB272 million was accounted for as “Receivables and Prepayments” for the Taian project.

As at the date of this report, the Proposed Investigation is still in progress and the circumstances in respect of the payment transactions remained substantially the same as at 31 December 2016 and the directors of the Company were unable to provide us any further explanation about these transactions and balances. Based on our procedures performed, the following issues which were highlighted in the report of the Company’s auditor relating to the Company’s 2016 financial statements remained unresolved:

(i) the business rationale (including the reasonableness of the subsidies to tenants as compared with common market practices) and commercial substance, occurrence, accuracy, completeness and presentation of these transactions together with the related balances as at and during the year/period ended 31 December 2016 and 30 June 2017;

(ii) whether the effects of these transactions have been properly accounted for and disclosed, including the potential impact on the carrying amounts of the related assets of the Foshan project and the Taian project including “Investment Properties”, “Receivables and Prepayments” or other assets in the Group’s consolidated balance sheet as at 31 December 2016 and condensed consolidated balance sheet as at 30 June 2017 and the potential related impact to changes in fair value for investment properties or other items in the consolidated income statement for the year ended 31 December 2016 and the condensed consolidated interim income statement for the six-month period ended 30 June 2017; and

(iii) disclosure of the related capital commitment, if any.

(4) Payments made to certain financial consultancy companies

The Company’s auditor reported limitation on their scope of work in their audit of the Company’s 2016 financial statements in respect of payments made to certain financial consultancy companies. The details about the payment transactions are summarised below.

In 2016, total payments of RMB120 million to four companies incorporated in the PRC (the “Financial Consultancy Companies”) was made by certain wholly-owned subsidiaries of the Group. These balances were capitalised in “Properties under Development” in the consolidated balance sheet as at 31 December 2016.

For these payments, several financial consultancy service agreements (the “Financial Consultancy Agreements”) were entered into by the Group in May 2016, pursuant to which, the Financial Consultancy Agreements, the Financial Consultancy Companies should provide financial consultancy services to the Group. Details of the services were not provided in these agreements however. In addition, a management schedule was provided to relate the aforesaid financial consultancy service fees of RMB120 million to an entrusted loan of RMB750 million obtained by the Group in May 2016, together with certain documents from the Financial Consultancy Companies to the Group stating that the amounts received were related to the aforesaid entrusted loan. However, the names or the existence of the Financial Consultancy Companies as consultants were not mentioned in the corresponding entrusted loan agreement.

In relation to these payment transactions, together with the concerns on those transactions described in sub-sections headed (2) and (3) in this report, the auditor of the Company’s 2016 financial statements has requested the Company’s audit committee to commission an independent investigation on the approval, authenticity and commercial substance of the relevant transactions (the “Proposed Investigation”). Because of the above scope limitations and the multiple uncertainties relating to the Group’s ability to continue as a going concern (see sub-section (1) above), the Company’s auditor did not express an opinion on the Company’s 2016 financial statements

As at the date of this report, the Proposed Investigation is still in progress and the circumstances in respect of the payment transactions remained substantially the same as at 31 December 2016 and the directors of the Company were unable to provide us any further explanation about these transactions and balances. Based on our procedures performed, the following issues which were highlighted in the report of the Company’s auditor relating to the Company’s 2016 financial statements remained unresolved:

(i) the business rationale and commercial substance, occurrence, accuracy, completeness and presentation of these transactions together with the related balances as at and during the year/period ended 31 December 2016 and 30 June 2017; and

(ii) whether the effects of these transactions have been properly accounted for and disclosed, including the potential impact on the carrying amounts of the any related assets of the Group’s property projects under “Properties under Development ”and “Investment Properties” in the consolidated balance sheet as at 31 December 2016 and condensed consolidated balance sheet as at 30 June 2017 and the potential related impact to the consolidated income statement for the year ended 31 December 2016 and the condensed consolidated interim income statement for the six-month period ended 30 June 2017.

Disclaimer of Conclusion

Due to the significance of the matters described in the Basis for Disclaimer of Conclusion paragraphs, we were unable to obtain sufficient appropriate evidence to form a conclusion on the accompanying interim financial information. Accordingly, we do not express a conclusion on this interim financial information.

2017.08 LUMENA NEWMAT

Company Name: China Lumena New Materials Corp.
Stock Code: 00067
Year end: June 30, 2017

Basis for disclaimer of conclusion

Scope limitation due to incomplete books and record

Up to the date of this report, given the incomplete books and records and serious doubts over the reliability of the Group’s accounting and other records, the provisional liquidators of the Company, acting as agents of the Company (without liability and recourse), believe that, it is almost impossible, and not practical, to ascertain the correct revenue and profit or loss (and the resultant assets and liabilities) for the current period for inclusion in the interim financial information of the Group. Also, due to incomplete books and records, the Provisional Liquidators of the Company believe that it is almost impossible, and not practical, to verify the interim financial information of the Group for the past years and, in particular prior to the appointment of the Provisional Liquidators on 25 February 2015. We were therefore unable to carry out satisfactory procedures to obtain reasonable assurance regarding the completeness, accuracy, existence, valuation, classification and disclosures of the transactions, contingent liabilities and commitments of the Group for the year ended 31 December 2016 and period ended 30 June 2017.

Given these circumstances, which are more fully disclosed in notes to the unaudited condensed consolidated interim financial statements, there were no practicable procedures that we could perform to satisfy ourselves that the information and documents presented to us for the purpose of our review are complete and accurate in all material respects, nor to quantify the extent of adjustments that might be necessary in respect of the Group’s unaudited interim financial information.

Any adjustments found to be necessary in respect thereof had we obtained sufficient appropriate evidence would have had a consequential effect on the net assets of the Group as at 1 January 2017 and 30 June 2017, and on its loss for the periods ended 30 June 2017 and 2016, and the related disclosures thereof in the unaudited condensed consolidated interim financial statements.

Non-compliance with IFRSs and omission of disclosures

As explained in notes to the unaudited condensed consolidated interim financial statements, as the unaudited condensed consolidated interim financial statements of the Group have been prepared by the former management of the Company and the Provisional Liquidators have presented these financial statements based on incomplete books and records, the Provisional Liquidators believe it is almost impossible and not practicable to ascertain the correct amounts. Consequently, the Provisional Liquidators of the Company were unable to confirm that the unaudited condensed consolidated interim financial statements comply with IFRSs, or that the disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited have been complied with. Given these circumstances, which are more fully described in notes to the unaudited condensed consolidated interim financial statements, there were no practicable procedures that we could perform to quantify the extent of adjustments that might be necessary in respect of the Group’s interim financial information

Investments in unconsolidated subsidiaries and deconsolidation of subsidiaries

As disclosed in notes to the unaudited condensed consolidated interim financial statements, due to incomplete books and records, the Provisional Liquidators of the Company have been unable to access the books and records of certain subsidiaries of the Company (collectively referred to as “Unconsolidated Subsidiaries”). Due to the lack of complete books and records of the Unconsolidated Subsidiaries, the provisional liquidators consider that there is insufficient documentation to satisfy the Provisional Liquidators on control of the Unconsolidated Subsidiaries in accordance with the requirements of International Financial Reporting Standard 10 “Consolidated Financial Statements”. Therefore, it is almost impossible, and not practical, to consolidate the financial statements of the Unconsolidated Subsidiaries into the Group’s consolidated financial statements since 25 February 2015, the date of the appointment of the provisional liquidators of the Company.

However, no sufficient evidence has been provided to satisfy ourselves as to whether the Company had control of these Unconsolidated Subsidiaries since 25 February 2015 and throughout the six months ended 30 June 2017 and accordingly we have been unable to obtain sufficient reliable evidence to satisfy ourselves as to whether it is appropriate to exclude the Unconsolidated Subsidiaries from the consolidated financial statements and the loss on deconsolidation of unconsolidated subsidiaries.

The exclusion of the financial position and results of the Unconsolidated Subsidiaries in the consolidated financial statements is a departure from the requirements of International Financial Reporting Standard 10 “Consolidated Financial Statements”.

Due to the lack of complete books and records of the Unconsolidated Subsidiaries, we were unable to obtain sufficient appropriate evidence and explanations to determine whether the carrying values of the investments in the Unconsolidated Subsidiaries were free from material misstatement. Any adjustments that might have been found to be necessary would have a consequential significant effect on the Group’s and the Company’s net liabilities as at 30 June 2017 and the Group’s results for the period then ended.

Material uncertainty related to going concern basis

The unaudited condensed consolidated interim financial statements have been prepared on a going concern basis on the assumption that the proposed restructuring of the Company will be successfully completed, and that, following the restructuring, the Group will continue to meet in full its financial obligations as they fall due in the foreseeable future. The unaudited condensed consolidated interim financial statements do not include any adjustments that would result from a failure to complete the restructuring. We consider that the disclosures are adequate. However, in view of the extent of the uncertainty relating to the completion of the restructuring, we disclaim our conclusion in respect of the material uncertainty relating to the going concern basis of preparation of these unaudited condensed consolidated interim financial statements.

Disclaimer of conclusion

Because of the significance of the matters described in the basis for disclaimer of conclusion paragraphs, we have not been able to obtain sufficient appropriate evidence to form a conclusion on the unaudited condensed consolidated interim financial statements. Accordingly, we do not express a conclusion on the unaudited condensed consolidated interim financial statements.

2017.08 NVC LIGHTING

Company Name: NVC Lighting Holding Limited
Stock Code: 02222
Year end: June 30, 2017

BASIS FOR QUALIFIED CONCLUSION

(a)Impairment of other receivables and uncertainties relating to financial guarantee contracts

As set out in Note 18 to the condensed consolidated interim financial statements, a subsidiary of the Company (the “Subsidiary”) entered into several pledge and guarantee agreements in 2013 and 2014 (the “Pledge and Guarantee Agreements”) with certain banks in the People’s Republic of China (the “PRC”), providing guarantees to the banks for their loan facilities granted to certain borrowers. Counter guarantees were provided by one of the borrowers of the bank loans (the “Borrower”) to the Group. During 2014, aggregate pledged time deposits of RMB550,924,000 of the Subsidiary had been withdrawn by the banks due to default of the bank loans under the guarantees of the Subsidiary.

The Group initiated legal actions to claim the counter guarantees provided by the Borrower. As at 31 December 2016 and 30 June 2017, other receivables of RMB550,924,000due from the Borrower were included in “Prepayments, deposits and other receivables” in the condensed consolidated statement of financial position as set out in Note 14 to the condensed consolidated interim financial statements. The directors are of the opinion that an amount of RMB265,564,000 (the “Recoverable Amount”) is recoverable as at 31 December 2016 and 30 June 2017, and accordingly a provision for the irrecoverable amount of RMB285,360,000 had been recognised in profit or loss for the year ended 31 December 2014. There was no subsequent reversal of the provision or further provision recognised.

As set out in Note 18 to the condensed consolidated interim financial statements, the Subsidiary also entered into guarantee agreements with another PRC bank in 2013 (the “Guarantee Agreement  1”) and a PRC finance company in 2014 (the “Guarantee Agreement 2”) respectively, providing guarantees to the PRC bank and the PRC finance company for their loan facilities granted to their borrowers.  The outstanding loans of RMB35,497,000 and RMB34,000,000 in relation to the Guarantee Agreements 1 and 2 were in default in 2015 and 2014 respectively. The PRC bank and the PRC finance company have taken legal actions against the respective borrowers and the guarantors (including the Subsidiary and the Borrower as guarantors) to recover the loan balances and interests.

For the Guarantee Agreement 1, according to the first court judgement in 2016 and the final court judgement in May 2017, the Subsidiary is adjudicated to be jointly liable for the payment to the PRC bank of the outstanding loan, plus interest and costs, and the Group has no plan of filing further legal proceeding therefor. For the Guarantee Agreement 2, according to the first court judgement in 2016, the Subsidiary is adjudicated to be jointly liable for the payment to the PRC finance company of the outstanding loan, plus interest and costs. The Subsidiary has filed appeal against the first court judgement in relation to the Guarantee Agreement 2 and the related outcome of the appeal according to the official legal documents received by the Subsidiary is pending as of the date of approval of these condensed consolidated interim financial statements.

The directors, with reference to legal opinions obtained and other factors, consider that the likelihood of the Group sustaining losses from the Guarantee Agreements 1 and 2 is remote as it is considered that the loans had sufficient underlying securities including the Borrower’s guarantees and the Subsidiary is only one of the guarantors for the loans. As a result, the directors considered that no provision thereon is considered necessary as at 31 December 2016 and 30 June2017.

However, as the legal proceedings in relation to the Pledge and Guarantee Agreements and the Guarantee Agreement 2 are still in progress and the financial consequence of the final judgement about the legal proceeding in relation to the Guarantee Agreement 1 on the Group is still uncertain and we are unable to obtain sufficient evidence to ascertain the above management assessment, we are not able to assess the likely outcome of the legal proceedings in respect of the amount that the Group would recover from the Borrower’s assets as determined by the court and the amount ultimately to be recovered from the Borrower in connection with the Pledge and Guarantee Agreements, and to determine if any provision arising from the Guarantee Agreements 1 and 2 is necessary. As a result, we are not able to ascertain the recoverability of the Recoverable Amount due from the Borrower and any provision for the Guarantee Agreements 1 and 2 as at 30 June 2017 should be recognised. Our audit opinion on the Company’s annual consolidated financial statements ended 31 December 2016 was qualified in this respect.

Any adjustments to the Recoverable Amount due from the Borrower and any provision to be recognised as at 31 December 2016 and 30 June 2017 in respect of the Guarantee Agreements 1 and 2 would have a consequential impact on the Group’s net assets as at 31 December 2016 and 30 June 2017, and the Group’s financial performance for the periods then ended.

Our review conclusion on the Company’s condensed consolidated interim financial statements for the six months ended 30 June 2016 was also qualified in this respect.

Had we been able to complete our review of the Recoverable Amount due from the Borrower and provision to be recognised as at 30 June 2017 in respect of the Guarantee Agreements 1 and 2, matters might have come to our attention indicating that adjustments might be necessary to the condensed consolidated interim financial statements.

(b) Provision for loss on financial guarantee contract

As set out in Note 18 to the condensed consolidated interim financial statements, in addition to the agreements as mentioned in the above paragraphs, the Subsidiary entered into a guarantee agreement (the “Guarantee Agreement 3”) with a PRC bank in 2014, providing guarantee to the bank for a loan facility granted to its borrower. The bank loan was in default in 2014 and the bank has taken legal actions against the borrower and the guarantors (including the Subsidiary) to recover the bank loan balance and interest.  A court order was issued to freeze assets of the guarantors (including the Subsidiary) in the amount of RMB62,000,000. As a result of the court order, bank balance of the Subsidiary in the amount of RMB55,396,000 had been frozen by the bank as at 31 December 2016. According to the first court judgement in 2016 and the final court judgement in January 2017, the Subsidiary is adjudicated to be jointly liable for the payment to the PRC bank of RMB60,000,000, plus interest and costs. In February 2017, the frozen bank balance of the Group has been withdrawn by the court for the purpose of settlement of the claim by the PRC bank. The Subsidiary has filed application of retrial of the PRC court judgements in relation to the Guarantee Agreement 3 and the related outcome of the application according to the official legal documents received by the Subsidiary is pending as of the date of approval of these condensed consolidated interim financial statements and accordingly the Group is of the view that the legal proceedings are still in progress notwithstanding the final court judgement. As at 30 June 2017, the withdrawn amount of RMB55,396,000 was included in “Prepayments, deposits and other receivables” in the condensed consolidated statement of financial position as set out in Note 14 to the condensed consolidated interim financial statements

The directors, with reference to legal opinion obtained and other factors, consider that the likelihood of the Group sustaining losses from the guarantee is remote as it is considered that the bank loan had sufficient underlying securities and the Subsidiary is only one of the guarantors the bank loan. The directors believe the withdrawn balance be fully recovered upon the conclusion court judgements and no provision on the frozen and subsequently withdrawn amount is considered necessary as at 31 December 2016 and 30 June 2017 respectively. In addition, the directors are of the opinion that no provision on any shortfall between the amount to be ultimately settled by the Group under the Guarantee Agreement 3 and the Subsidiary’s frozen and subsequently withdrawn bank balance is considered necessary as at 31 December 2016 and 30 June 2017 respectively.

However, we are not able to assess the likelihood of successfully applying for the retrial of the PRC court judgements by the Group and the likely outcome of such retrial of the PRC court judgements and we are unable to obtain sufficient evidence to ascertain the above management assessment, and accordingly, we are not able to ascertain whether any provision on the frozen and subsequently withdrawn bank balance as at 30 June 2017, and any shortfall between the amount to be ultimately settled by the Group under the Guarantee Agreement 3 and the Subsidiary’s frozen and subsequently withdrawn amount is required to be made as at 30 June 2017. Our audit opinion on the Company’s annual consolidated financial statements ended 31 December 2016 was qualified in this respect.

Any provisions that should have been made as at 31 December 2016 and 30 June 2017 would have a consequential impact on the Group’s net assets as at 31 December 2016 and 30 June 2017, and the Group’s financial performance for periods then ended. Our review conclusion on the Company’s condensed consolidated interim financial statements for the six months ended 30 June 2016 was also qualified in this respect.

Had we been able to complete our review of the provisions that should have been made as at 30 June 2017, matters might have come to our attention indicating that adjustments might be necessary to the condensed consolidated interim financial statements.

QUALIFIED CONCLUSION

Except for the adjustments to the condensed consolidated interim financial statements that we might have become aware of had it not been for the situation described above, based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements are not prepared, in all material respects, in accordance with IAS 34.

2017.08 SHENG YUAN HLDG

Company Name: Sheng Yuan Holdings Limited
Stock Code: 00851
Year end: June 30, 2017

Basis for Qualified Conclusion

Our conclusion of the review of the Group’s interim condensed consolidated financial statements is qualified due to the following limitations:

(i) During the six months ended 30 June 2017, the Group had recognised its share of the associate’s loss for the period of HK$29,148,000 using equity accounting. The Group’s share of the loss of the associate of HK$29,148,000 using equity accounting included effectively a share of the impairment loss of HK$5,114,000 in respect of the associate’s investment of RMB18,000,000. However, the management was unable to provide us with the information, including up to date financial information of that associate’s investee company, which we considered necessary for the purpose of our review of the management’s basis for measuring the impairment loss. As the investee company was not a listed entity in the PRC, we were also not able to obtain the relevant financial or other information which we considered necessary and there were no alternative procedures which we could carry out to determine if the associate’s investment was impaired and the impairment loss of RMB18,000,000 reflected in the associate’s financial statements, of which HK$5,114,000 shared by the Group, was appropriately measured. As such, we were also unable to determine if the carrying amount of the Group’s interest in the associate of HK$3,529,000 as included in the condensed consolidated statement of financial position as of 30 June 2017 was appropriately stated. The Group’s share of the associate’s loss for the period was also qualified due to the matter explained in paragraph below.

(ii) Our audit opinion on the Group’s financial statements as of 31 December 2016 was qualified due to certain limitations on our scope of work as set out in our report dated 17 March 2017 which included limitations arising from the fact that the audit of the associate’s financial statements as of 31 December 2016 by the component auditors was not completed as of our audit report date and that there were insufficient audit evidence available to us relating to the impairment review of the Group’s interest in associate as of 31 December 2016. In respect of these matters, there were no alternative audit procedures that we could adopt to satisfy ourselves as to whether the Group’s interests in the associate was fairly stated. Despite the component auditors have subsequently issued their audit report, their audit opinion was qualified as in their view there were limitations in respect of their assessment whether that associate’s investment of RMB18,000,000 and certain intangible assets of RMB9,500,000 as of 31 December 2016 was impaired or not and the extent of impairment. The matters leading to our qualified audit opinion remained unresolved during the course of our review of the Company’s interim condensed consolidated financial statements. Our review conclusion on the interim condensed consolidated financial statements is qualified because of the possible effect of this matter on the comparability of the Group’s interests in the associate as of 30 June 2017 of HK$3,529,000 and 31 December 2016 of HK$72,334,000. Also because of the limitations, we are unable to determine whether adjustments to the opening accumulated losses of the Group of HK$306,342,000 as at 1 January 2017 might be necessary. These matters as mentioned above may have consequential impact on the amount of the Group’s impairment loss on interests in the associate and the Group’s share of the associate’s loss for the six months ended 30 June 2017.

Qualified Conclusion

Except for the adjustments to the interim financial information that we might have become aware of had it not been for the situation described above, based on our review, nothing has come to our attention that causes us to believe that the interim financial information is not prepared, in all material respects, in accordance with HKAS 34.

2017.08 IMAGI INT’L

Company Name: Imagi International Holdings Limited
Stock Code: 00585
Year end: June 30, 2017

Basis for qualified conclusion

(i) As explained in note 17 to the interim financial report, the Group had not been able to access the books and records of a wholly-owned subsidiary, 廈門盛福明德商務服務有限公司(Xiamen Sunflower Mingde Business Service Co. Ltd. (“Xiamen Sunflower”)), since November 2015 as a result of the loss of contact with a former executive director of the Company who was also the legal representative and sole director of Xiamen Sunflower. Against this background, the investment in Xiamen Sunflower had been accounted for on a cost less impairment basis and had not been consolidated in the consolidated financial statements for the year ended 31December 2015 or in the period from 1 January 2016 to 9 March 2016 (date of disposal). Under Hong Kong Financial Reporting Standard 10 “Consolidated Financial Statements” (“HKFRS 10”) issued by the Hong Kong Institute of Certified Public Accountants, consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. The financial statements of Xiamen Sunflower should have been consolidated up to the date of disposal because it was controlled by the Company since its incorporation to the date of disposal and accordingly the consolidated financial statements were not prepared in all material respects in accordance with HKFRS. Had Xiamen Sunflower been consolidated for the period from 1 January 2016 to 9 March 2016 (date of disposal), many elements in the interim financial report for the six months ended 30 June 2016 would have been materially affected. The predecessor auditor disclaimed their conclusion in this aspect for the six months ended 30 June 2016 and we issued a qualified opinion in respect of the consolidated financial statements for the year ended 31 December 2016.

As disclosed in note 17 to the interim financial report, the Group completed the disposal of Imagi Jue Ming Limited (which holds the entire equity interest in Xiamen Sunflower) during the period ended 30 June 2016 and the purchaser confirmed that the conditions of the disposal were satisfied on 9 March 2016 (the date of disposal). In the absence of reliable financial information of Xiamen Sunflower for the period from 1 January 2016 to the date of disposal, it was not practicable for the auditor to quantify the effects of the departure from the requirement of HKFRS 10 on the interim financial report for the six months ended 30 June 2016, including the amount in relation to the gain or loss on disposal, or to assess whether the disclosures with respect to Xiamen Sunflower in the notes to the interim financial report were appropriate. Any adjustment that would be required may have a consequential significant effect on the loss and total comprehensive expense attributable to the owners of the Company for the six months ended 30 June 2016. The predecessor auditor disclaimed their conclusion in this aspect for the six months ended 30 June 2016 and we issued a qualified opinion in respect of the consolidated financial statements for the year ended 31 December 2016.

Our review conclusion on the current period’s interim financial report is also modified because of the possible effect of the matter on the comparability of the current period’s figures and the corresponding figures.

(ii) As explained in note 18 to the interim financial report, the management of a joint venture in which the Group held 50% equity interest was unable to obtain sufficient and reliable financial information in respect of a borrower (the “Borrower”) or the guarantor (the “Guarantor”) of a loan receivable, together with its accrued interest, acquired by the joint venture during the six months period ended 30 June 2016 for a consideration of HK$27,000,000 (the “Loan Receivable”) to assess the recoverability of the Loan Receivable and the related interest receivable. The Guarantor received a winding up petition. The Borrower was a subsidiary of the Guarantor and the Guarantor was undergoing restructuring. No repayments in respect of the Loan Receivable and the related interest receivable were received by the joint venture. The auditor was therefore unable to obtain sufficient and reliable financial information in respect of the recoverability of the Loan Receivable and the related interest receivable of HK$29,591,000 as at 30 June 2016. Any adjustment to the carrying amount of the Loan Receivable and the related interest receivable may have consequential effect on the Group’s share of profits of the joint venture for the six months ended 30 June 2016. The predecessor auditor disclaimed their conclusion in this aspect for six months ended 30 June 2016. The management made impairment for the Loan Receivable and the corresponding accrued interest receivable in the second half of 2016.

Our review conclusion on the current period’s interim financial report is also modified because of the possible effect of the matter on the comparability of the current period’s figures and the corresponding figures.

Qualified conclusion

Except for the possible effects of the matters described in the basis for qualified conclusion paragraphs, based on our review, nothing has come to our attention that caused us to believe that the interim financial report as at 30 June 2017 is not prepared, in all material respects, in accordance with HKAS 34.

2017.08 CHINA TING

Company Name: China Ting Group Holdings Limited
Stock Code: 03398
Year end: June 30, 2017

Basis for Qualified Conclusion

As discussed in note 11 to the condensed consolidated interim financial information, the Group held available-for-sale financial assets of HK$275 million as of 30 June 2017 which represented 29% equity interest (the “Equity security”) in and shareholders’ loans (the “Debt security”) granted to Zhejiang Haoran Property Company Limited (“Zhejiang Haoran”) of HK$42 million and HK$233 million, respectively. In assessing the fair value of the available-for-sale financial assets, management adopted the Adjusted net asset value (NAV) approach to estimate the fair value of 100% equity interest in Zhejiang Haoran; then applying a minority interest discount rate to calculate the value of the 29% equity interest and considered the equity value of Zhejiang Haoran to estimate future expected cash flows under the debt security to assess the fair value of such debt security. Under the Adjusted NAV approach, the book values of Zhejiang Haoran’s assets and liabilities are adjusted to their respective fair values. The principal asset of Zhejiang Haoran is a commercial property project under construction located in Hangzhou (the “Property”), which is valued using direct comparison approach and residual approach.

The Group was unable to obtain any financial information of Zhejiang Haoran as of and for the six months ended 30 June 2017. As such, the fair value of the available-for-sale financial assets as of 30 June 2017 is estimated by management using the Adjusted NAV approach based on Zhejiang Haoran’s financial information as of 31 December 2016. The fair value of the Property has been adjusted to take into account the latest market price movements of similar properties at nearby locations during the current period and assumed the construction progress remained unchanged from that as of 31 December 2016. Interest expense for the current period has been accrued for interest-bearing liabilities outstanding as of 31 December 2016 and assuming the balance outstanding and the interest rates remained unchanged from those as of 31 December 2016. Other assumptions adopted in the valuation, including but not limited to the minority interest discount rate, are assumed to be remained unchanged from that as of 31 December 2016.

In absence of the latest financial information of Zhejiang Haoran, we are unable to obtain sufficient appropriate evidence to assess the appropriateness of the financial information and the assumptions adopted by management in their measurement of the fair value of the available-for-sale financial assets. There were no other satisfactory procedures that we could perform to determine whether any adjustments to the carrying value of the available-for-sale financial assets as at 30 June 2017 were necessary.

Qualified Conclusion

Except for the adjustments to the interim financial information that we might have become aware of had it not been for the situation described above, based on our review, nothing has come to our attention that causes us to believe that the interim financial information is not prepared, in all material respects, in accordance with Hong Kong Accounting Standard 34 “Interim Financial Reporting.

2017.08 WISON ENGRG

Company Name: Wison Engineering Services Co. Ltd.
Stock Code: 02236
Year end: June 30, 2017

Basis for qualified conclusion

As set out in notes 11 and 12 to the interim financial information, the Group had trade receivables  of RMB51,572,000  as at 30 June  2017  (31 December  2016: RMB55,937,000) and amounts due from contract customers of RMB863,169,000 as at 30 June 2017 (31 December 2016:RMB951,169,000),respectively, which have been identified as overdue in accordance with the contract terms.  The Group has made an impairment provision of RMB643,629,000 for these amounts due from contract customers as at 30 June 2017 (31 December 2016: RMB643,629,000).  The Group is still in negotiation with these  customers for the settlement of the outstanding balances.  We have been unable to obtain sufficient evidence to support the provision made by management and whether any of such provision should be charged to profit or loss during the six monthsended30 June 2017 or previous years.  Accordingly, we were unable to satisfy ourselves regarding the appropriateness of the impairment provision against amounts due from contract customers as mentioned above and the recoverability of the remaining overdue trade receivables of RMB51,572,000as at 30 June 2017 (31 December2016: RMB55,937,000) and amounts due from contract customers of RMB219,540,000 as at 30 June 2017 (31 December2016:RMB307,540,000), respectively.  Any adjustments to the provision for these balances would have impact on the net assets of the Group as at 30 June 2017 and 31 December2016 and the net profit or the six monthsended30 June 2017 and 2016, respectively.

Qualified conclusion

Except for the possible effects of the matters described in the basis for qualified conclusion paragraph, based on our review, nothing has come to our attention that caused  us to believe that the interim financial information as at 30 June 2017 and for the six months then ended is not prepared, in all material respects, in accordance with IAS 34.

2017.08 G CHINA FIN

Company Name: Greater China Financial Holdings Limited
Stock Code: 00431
Year end: June 30, 2017

BASIS FOR QUALIFIED REVIEW CONCLUSION

Opening Balances and Corresponding Figures

The condensed consolidated financial statements for the six months ended 30 June 2016, which form the basis for the corresponding figures presented in the current period’s interim financial information, and the review conclusion on condensed consolidated financial statements for the six months ended 30 June 2016 was disclaimer in view of the possible effect of the Group’s de-consolidated subsidiaries in respect of: a) the departure from Hong Kong Financial Reporting Standard 10 “Consolidated Financial Statements”(“HKFRS 10”), and b) the compliance with HKAS 37 “Provisions, Contingent Liabilities and Contingent Assets”. Details of the disclaimer review conclusion were set out in the report on review of interim financial information date 29 August 2016 and included in the Company’s interim report for the six months ended 30 June 2016.

In our auditor’s report dated 17 March 2017 on the consolidated financial statements for the year ended 31 December 2016, we reported the same matter which resulted in a disclaimer of opinion.

Our conclusion on the current period’s interim financial report is also modified because of the effect of this matter on the comparability of the current period’s figures and the corresponding figures.

QUALIFIED CONCLUSION

Based on our review, except for the possible effects of the matter described in the basis for qualified conclusion paragraph, nothing has come to our attention that causes us to believe that the interim financial information for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with Hong Kong Accounting Standard 34, “Interim Financial Reporting”.

2017.08 E-COMMODITIES

Company Name: E-Commodities Holdings Limited
Stock Code: 01733
Year end: June 30, 2017

Basis for Qualified Conclusion

As disclosed in note 12 to the interim financial report, as at 30 June 2017, the Group had an outstanding loan due from Moveday Enterprises Limited (“Moveday”) of US$13.55 million (equivalent to approximately $105,845,000) (31 December 2016: US$15.50 million (equivalent to approximately $120,260,000)) after recovery of loan principal of US$1.95 million (equivalent to approximately $15,138,000) during the six months ended 30 June 2017. As at 30 June 2017, the Group continues to make an impairment provision of $105,845,000 (31 December 2016: $120,260,000) taking into account the existence of uncertainties relating to the future financial and operating circumstances of Moveday, but not the possibility of any further recovery that may be achieved in future through re-negotiation of the terms of the loan or alternative forms of settlement in kind. We qualified our auditor’s report dated 28 March 2017 on the Group’s financial statements for the year ended 31 December 2016 in respect of a limitation in the scope of our audit relating to this impairment loss provision, as we were unable to obtain sufficient appropriate audit evidence to evaluate the reasonableness of the assumptions adopted by the directors of the Company in estimating the expected timing and amounts of future cash flows arising from the loan. Given the inherent limitations in the scope of our review, which is by definition substantially less than an audit, and that this matter has not been resolved, we continue to be unable to reach a conclusion as to whether the directors’ judgement in this matter is appropriate and therefore whether the amount of this impairment provision is, or is not, in accordance with the applicable accounting framework.

Any decrease in the impairment losses recognised against the loan balance due from Moveday would affect the net assets of the Group as at 30 June 2017 and could also affect the Group’s profit for the six months then ended, the opening balance of accumulated losses as at 1 January 2017, net assets as at 31 December 2016, and the related disclosures in the interim financial report.

Qualified Conclusion

Based on our review, except for the possible effects of the matter described in the Basis for Qualified Conclusion paragraph, nothing has come to our attention that causes us to believe that the interim financial report as at 30 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34, Interim financial reporting.

2017.08 KINGBO STRIKE

Company Name: Kingbo Strike Limited
Stock Code: 01421
Year end: June 30, 2017

BASIS FOR DISCLAIMER OF OPINION

Acquisition of Kahuer Holding Co., Limited

As disclosed in Note 28 to the consolidated financial statements, on 27 May 2016, the Group acquired 60% equity interest in Kahuer Holding Co., Limited (“Kahuer”) at an aggregate consideration of approximately HK$420 million (equivalent to S$74,394,615) (the “Acquisition”). Kahuer and its subsidiaries (hereinafter collectively referred as the “Kahuer Group”) are principally engaged in the construction, operation and sale of solar power station projects in the People’s Republic of China (the “PRC”). Management considered that the Acquisition was a business combination.

During the course of the preparation of the consolidated financial statements of the Group for the financial year ended 30 June 2016, the directors of the Company had engaged an independent external professional valuer to assist them in preparing a cash flow forecast of the Kahuer Group projects based on financial budgets covering a five-year period (the “Forecast”) to determine the fair values of the identifiable assets and liabilities of the Kahuer Group for the purpose of purchase price allocation at the date of Acquisition. The same forecast was used by the management of the Group for the purpose of year end impairment testing for the year ended 30 June 2016.

  1. Opening balances and corresponding figures

The consolidated financial statements of the Group for the year ended 30 June 2016, which form the basis for the corresponding figures presented in the current year’s consolidated financial statements, were not audited by us. The predecessor auditors’ audit opinion on the consolidated financial statements of the Group for the year ended 30 June 2016 was disclaimed because of the significance of the possible effects of the limitation on the scope of the audit in relation to the Acquisition, as described in paragraphs (2) to (6) below. As stated in their auditors’ report, the Kahuer Group was established less than one year as at 30 June 2016 and did not have any sales transactions since its establishment. There was no other reliable data available from other sources alternatively. In the absence of historical information and reliable documents supporting the inputs and assumptions used in the preparation of the Forecast, the predecessor auditors were unable to evaluate the reasonableness of the Forecast.

Details of the matters that gave rise to the disclaimer of opinion were set out in the independent auditors’ report dated 20 December 2016 included in the Company’s annual report for the year ended 30 June 2016.

The opening balances as at 1 July 2016 of the assets and liabilities which were the subject matters of the predecessor auditors’ disclaimer of opinion enter into the determination of the financial performance and cash flows of the Group for the current financial year and have carr yforward effects on the closing balances as at 30 June 2017.

We were not able to obtain sufficient appropriate audit evidence to enable us to assess the effects of the matters to which the limitation of scope for the year ended 30 June 2016 relate. Any adjustments found to be necessary to the opening balances as at 1 July 2016 may affect the balance of retained profits as at 1 July 2016, the Group’s results for the year ended 30 June 2017, the closing balances as at 30 June 2017 and related disclosures in the notes to the consolidated financial statements of the Group for the year ended 30 June 2017. Accordingly, we were unable to determine whether adjustments might have been necessary in respect of the financial performance of the Group for the year ended 30 June 2017 reported in the consolidated statement of profit or loss and other comprehensive income, the cash flows from operating activities reported in the consolidated statement of cash flows and the financial position of the Group as at 30 June 2017 reported in the consolidated statement of financial position as at 30 June 2017, and the possible effects of these matters on the comparability of the current period’s figures and the corresponding figures.

  1. Identifiable assets and liabilities of the Kahuer Group

As referred to in Note 28 to the consolidated financial statements, included in the purchase price allocation were inventories of approximately S$3.5 million which were stated at fair value as at the date of the Acquisition. Management determined the projected margin of these inventories based onthe Forecast and derived the respective fair value. Deferred tax liabilities of approximately S$0.8 million was recognised which arose from the difference between the fair value and the carrying value of these inventories. Consequently, non-controlling interest of approximately S$1.0 million, being 40% of the net assets less liabilities of the Kahuer Group at the date of acquisition, and the goodwill of approximately S$58.4 million, being the residual value from the purchase price allocation, were recognised as at 27 May 2016.

Due to the scope limitations encountered by the predecessor auditors in ascertaining the reasonableness of the Forecast in the previous year, we were unable to carry out alternative audit procedures we considered necessary to satisfy ourselves as to whether the purchase price allocation referred to above were appropriately stated. Any adjustments found to be necessary to the opening balances as at 1 July 2016 may affect the balance of retained profits as at 1 July 2016, the Group’s results for the year ended 30 June 2017, closing balances as at 30 June 2017 and related disclosures in the notes to the consolidated financial statements of the Group for the year ended 30 June 2017.

  1. Impairment assessment of goodwill

As detailed in Note 12 to the consolidated financial statements, included in the consolidated statement of financial position of the Group was goodwill of gross carrying amount of approximately RMB282.6 million (equivalent to approximately S$57.5 million) as at 30 June 2017 (2016: approximately S$57.4 million) which arose from the Acquisition as stated in Note 28. In the preceding financial year, the management of the Group performed impairment assessment on this goodwill by comparing its carrying value to the respective recoverable amount of solar power station project cash generating unit and concluded that the goodwill was not impaired. As the recoverable amount was determined from the Forecast, for which the predecessor auditors were unable to evaluate the reasonableness thereof, the predecessor auditors were unable to ascertain whether the recoverable amount was reliably determined and whether the goodwill was impaired as at 30 June 2016. In the current financial year, the management of the Group performed impairment assessment on the goodwill based on valuation report prepared by an independent external professional valuer. Provision for impairment losses amounting to approximately RMB202.5 million (equivalent to approximately S$41.2 million) was made on the goodwill during the year ended 30 June 2017 as a result of the impairment assessment.

We have not been able to obtain sufficient appropriate audit evidence to satisfy ourselves that certain key assumptions adopted in the valuation of the value in use of the cash generating unit referred to above were reasonable and supportable. As disclosed in Note 12 to the consolidated financial statements, the forecasted revenue amounts during the cash flow projection period of five years were estimated by management of the Group based on an agreement newly signed with a new customer. There was no sufficient historical operating data to support the assumptions relating to gross profits achievable under the agreement. Further, we are unable to satisfy ourselves about the sustainability of the revenue and gross profit streams as the entering into of the agreement was not a recurring event of the Group. In the absence of sufficient appropriate evidence regarding whether the key assumptions adopted were reasonable and supportable, we were unable to satisfy ourselves as to the appropriateness and sufficiency of the amount of impairment loss on the goodwill recognised in the consolidated financial statements.

Due to the scope limitations in the current and previous years, we were unable to carry out sufficient appropriate audit procedures we considered necessary to satisfy ourselves as to whether the balance of the goodwill as at 30 June 2017 and the related impairment loss for the year ended 30 June 2017 were free from material misstatement and fairly stated. Further, any adjustments found to be necessary to the opening balance of the goodwill as at 1 July 2016 may affect the balance of retained profits as at 1 July 2016, the Group’s results for the year ended 30 June 2017, closing balance as at 30 June 2017 and related disclosures in the notes to the consolidated financial statements of the Group for the year ended 30 June 2017.

  1. Fair value of profit guarantee receivable

As described in Note 19, included in the consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2017 is a loss from change in fair value of profit guarantee receivable of approximately RMB44.1 million (equivalent to approximately S$9.0 million). The fair values of the profit guarantee receivable as at the date of the Acquisition and 30 June 2016 were derived from the same data input used in the Forecast but a different methodology model was applied. In the absence of historical information and reliable documents supporting the inputs used in the preparation of the Forecast, the predecessor auditors were unable to ascertain the reasonableness of this profit guarantee receivable.

In the current financial year, the profit guarantee receivable was carried at its fair value, which was determined to be S$Nil based on the actual performance of the Kahuer Group, including the gain on settlement of long-term prepayments for acquisition of subsidiaries, as the period covered by the profit guarantee had already ended. In view of the scope limitations described above, we were unable to carry out alternative audit procedures we considered necessary to satisfy ourselves as to whether the opening balance of the profit guarantee receivable was free from material misstatement. Any adjustments found to be necessary to the opening balance as at 1 July 2016 may affect the balance of retained profits as at 1 July 2016, the loss from change in fair value of profit guarantee receivable included in the Group’s results for the year ended 30 June 2017 and related disclosures in the notes to the consolidated financial statements of the Group for the year ended 30 June 2017.

  1. Gain on settlement of prepayments for acquisition of subsidiaries

As described in the Note 6, included in the consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2017 is a gain on settlement of prepayment for acquisition of subsidiaries of approximately RMB12.0 million (equivalent to approximately S$2.2 million). The prepayments for acquisition of subsidiaries was arising from the Acquisition during year ended 30 June 2016 as stated in Note 28. As stated in the predecessor auditors’ audit report, the carrying amount of the long-term prepayments for acquisition of subsidiaries as at 30 June 2016 was determined on the basis of provisional allocation made by directors of the Company of the consideration of the Acquisition by reference to the Forecast using the attributable data input of the two entities concerned in the Forecast. In the absence of historical information and reliable documents supporting the inputs used in the preparation of the Forecast, the predecessor auditors were unable to ascertain whether the allocation basis was appropriate and consequently whether the long-term prepayments for acquisition of subsidiaries were appropriately stated.

Due to the scope limitations in the previous year’s audit, we were unable to carry out alternative audit procedures we considered necessary to satisfy ourselves as to whether the gain on settlement of long-term prepayments for acquisition of subsidiaries was free from material misstatement and fairly stated. Any adjustment found to be necessary to the opening balance as at 1 July 2016 may affect the balance of retained profits as at 1 July 2016, the Group’s results for the year ended 30 June 2017 and related disclosures in the notes to the consolidated financial statements of the Group for the year ended 30 June 2017.

  1. Gain on disposal of subsidiaries

As described in the Note 29, included in the consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2017 is a gain on disposal of subsidiaries of approximately RMB22.7 million (equivalent to S$4.6 million). The net assets of the subsidiaries disposed of included inventories – contract of approximately RMB14.9 million (equivalent to S$3.0 million) which were arising from the Acquisition during year ended 30 June 2016 as stated at Note 28 and deferred tax liabilities of approximately RMB3.7 million (equivalent to S$0.8 million) which was recognised in respect of the difference between the fair value and the carrying value of these inventories. As stated in paragraph (2) above, there were limitations in the scope of work of the predecessor auditors in relation to the purchase price allocation in respect of the Acquisition.

Due to the scope limitations in the previous year’s audit, we were unable to carry out alternative audit procedures we considered necessary to satisfy ourselves as to whether the gain on disposal of the subsidiaries was free from material misstatement and fairly stated. Any adjustment found to be necessary to the opening balances as at 1 July 2016 may affect the balance of retained profits as at 1 July 2016, the Group’s results for the year ended 30 June 2017 and related disclosures in the notes to the consolidated financial statements of the Group for the year ended 30 June 2017.