- 2011.07 AMAX HLDGS
Company Name: Amax Holdings LimitedStock Code: 00959Year end: March 31, 2011
Basis for Disclaimer of Opinion
(1) Scope limitation — Prior year’s audit scope limitation affecting opening balances and comparative figures
As detailed in the auditor’s report dated 30 July 2010 on the financial statements for the year ended 31 March 2010, we disclaimed our opinion on the Group’s financial statements for the year ended 31 March 2010 because of the significance of the possible effects of the limitation in evidence made available to us such that we were unable to satisfy ourselves as to whether the impairment loss as determined by the directors of the Company against the Group’s available-forsale financial asset, and in consequence the carrying amount of the available-for-sale financial asset of HK$121,860,000 as at 31 March 2010 was fairly stated. Any adjustments that might have found to be necessary in respect thereof had we obtained sufficient appropriate evidence would have had a consequential effect on (i) the net assets of the Group as at 31 March 2010, and (ii) the Group’s results and cash flows for the current year and the prior year and the related disclosures in the financial statements. In respect of the limitation of audit scope in prior year as described above, we were not able to express an opinion as to whether the balances brought forward as at 1 April 2010 and the comparative figures were fairly stated in the financial statements.
(2) Scope limitation — Available-for-sale financial asset
Included in the consolidated statement of financial position as at 31 March 2011 was an availablefor-sale financial asset carried at an amount of HK$30,936,000 which was arrived at after an impairment loss of HK$2,064,332,000 of which HK$90,924,000 was charged to the consolidated income statement for the year ended 31 March 2011 and HK$1,778,140,000 and HK$195,268,000 to the consolidated income statement and statement of comprehensive income for the year ended 31 March 2010 respectively. As detailed in notes to the financial statements, subsequent to the implementation of a 1.25% cap on junket commissions by the Macau government with effect from 1 December 2009, material changes to the business cooperation practices occurred. As a result, AMA failed to derive further income from the majority of its collaborators and to recover the credit granted to its collaborators. The financial position of AMA was adversely affected and so for the carrying amount of the available-for-sale financial asset. The directors determined that in addition to the impairment loss of HK$1,973,408,000 already made in last year, a further impairment loss of HK$90,924,000 should be made in the current year. The impairment losses were determined by reference to a valuation report prepared by an independent professional valuer based on value-in-use calculations by reference to the cash flow projections prepared by the directors. The cash flow projections were made on key assumptions that (i) cash from AMA’s debts will be received in accordance with the Repayment Schedules and Repayment Agreements entered into between AMA and its collaborators, (ii) nil amount will be received from those collaborators with whom no Repayment Schedules have been agreed upon and no Repayment Agreements have been entered into, (iii) AMA will repay all amounts collected from its collaborators to the Group before settling its other liabilities notwithstanding a creditor has taken legal action against AMA for the recovery of debts due by AMA, and (iv) with reference to the estimated recovery rate for the amount due from AMA.
In the opinion of the directors of the Company, due to the absence of available information and supporting evidences from AMA and its collaborators regarding the above-mentioned assumptions, they were unable to assess the fairness and appropriateness of the bases and assumptions and input data used in the calculations and therefore they were uncertain whether the impairment loss made against the available-for-sale financial asset was fair and appropriate. Due to the lack of sufficient appropriate evidence for the above mentioned, we were not able to satisfy ourselves as to whether the impairment loss as determined by the directors of the Company against the available-for-sale financial asset, and in consequence the carrying amount of the available-for-sale financial asset as at 31 March 2011 were fairly stated.
(3) Scope limitation — Interests in an associate and share of results of an associate in the Company and the consolidated financial statements
As detailed in notes to the financial statements, the directors of the Company considered that the Company was holding a 49.9% equity interest in an associate and equity accounted for the Group’s share of its interest and result based on that equity interest percentage and by reference to the management accounts of the associate for the year ended 31 March 2011. Accordingly, the consolidated income statement for the year ended 31 March 2011 and the consolidated and the Company’s statement of financial position as of that date included a share of profit of HK$1,230,505,000 and an interest in that associate of HK$1,561,381,000 respectively. A reversal of the previous impairment loss against the intangible assets included in interests in the associates of HK$962,626,000 and a reversal of the previous impairment loss against the interests in associates of HK$1,230,505,000 in the consolidated and the Company’s financial statements was made respectively. When performing our audit, we identified that the issued share capital of the associate has been increased on 30 October 2010 and the equity interest of the Group was diluted to 24.8%. Hence the share of profit, reversal of previous impairment loss and the carrying amount of interest in that associate in the financial statements of the Group and the Company as aforementioned should all be reduced correspondingly, and a gain or loss on the dilution of equity interest by 25.1% should be recognised. However, in the opinion of the directors of the Company, the Company’s interest in that associate is 49.9% throughout the whole year ended 31 March 2011. The Company is seeking legal opinion as regard its ownership interest in that associate. However, up to the date of this report, we were not able to obtain satisfactory audit evidence to confirm the directors’ opinion of the Group’s ownership interest in this associate. In addition, we were unable to obtain sufficient appropriate audit evidence to verify the management accounts of that associate and the basis and assumptions for the cashflow projections prepared by directors by reference to a valuation report prepared by the valuer for assessing the reversal of impairment. Due to the lack of sufficient appropriate audit evidence, we were not able to satisfy ourselves as to whether the share of profit, reversal of previous impairment loss and the carrying amount of interest in that associate in the financial statements of the Group and the Company as afore-mentioned are properly accounted for, and whether a gain or loss on the dilution of equity interest by 25.1% should be recognised. We were not able to quantify the effect in the financial statements of the Group and the Company if the associate had been equity accounted for at 24.8% as from 30 October 2010.
We were not able to carry out alternative audit procedures to satisfy ourselves as to the matters set out above.
Any adjustments that might have been found to be necessary in respect of the matters set out in the paragraphs above would have a significant consequential effect on the financial position of the Group and of the Company as at 31 March 2011 and the profit and cash flows of the Group for the year then ended and the related disclosures in the financial statements.
Disclaimer of Opinion
Because of the significance of the matters described in the basis for disclaimer of opinion paragraphs, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the consolidated financial statements as to whether they give a true and fair view for the state of affairs of the Company and of the Group as at 31 March 2011 and of the Group’s profit for the year then ended in accordance with Hong Kong Financial Reporting Standards and as to whether the consolidated financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.
Emphasis of Matters
We draw attention to notes to the consolidated financial statements which indicate that excluding the share of the results of that associate, the Group incurred consolidated loss of HK$64,249,000 for the year ended 31 March 2011, HK$2,497,000 of net cash outflow in operating activities during the year ended 31 March 2011 and the Company’s current liabilities exceeded its current assets by approximately HK$68,465,000 as at 31 March 2011. Notwithstanding the above, the consolidated financial statements have been prepared on a going concern basis, the validity of which depends on the success of those measures as stated in notes to the financial statements for the Group to obtain settlement from its trade receivables and the attainment by the Group and the Company of profitable operations and positive cash flows. These conditions, along with other matters as set forth in notes to the financial statement, indicate the existence of an uncertainty which may cast significant doubt about the Group’s and the Company’s ability to continue as a going concern